10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 28, 2019

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to    

Commission file number: 1-14315

 

Cornerstone Building Brands, Inc.

(Exact name of registrant as specified in its charter)

Delaware	76-0127701
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5020 Weston Parkway	Suite 400	Cary	NC	27513
(Address of principal executive offices)				(Zip Code)

(888) 975-9436

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ý Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	ý	Accelerated filer	☐
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ý No

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock $0.01 par value per share	CNR	New York Stock Exchange

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 par value - 125,566,409 shares as of October 31, 2019.

TABLE OF CONTENTS 

		PAGE
	Part I — Financial Information
Item 1.	Unaudited Consolidated Financial Statements	1
	Consolidated Statements of Operations for the Three and Nine Months Ended September 28, 2019 and July 29, 2018	1
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 28, 2019 and July 29, 2018	2
	Consolidated Balance Sheets as of September 28, 2019 and October 28, 2018	3
	Consolidated Statements of Cash Flows for the Nine Months Ended September 28, 2019 and July 29, 2018	4
	Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 28, 2019 and July 29, 2018, and the Transition Period ended December 31, 2018	5
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	55
	Part II — Other Information
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 6.	Exhibits	57

i

PART I — FINANCIAL INFORMATION 

Item 1.  Unaudited Consolidated Financial Statements. 

CORNERSTONE BUILDING BRANDS, INC. 

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Sales	$	1,285,043	$	548,525	$	3,645,332	$	1,426,943
Cost of sales	975,240		415,124		2,844,949		1,097,542
Gross profit	309,803		133,401		800,383		329,401
Selling, general and administrative expenses	154,034		79,039		466,368		228,231
Intangible asset amortization	44,725		2,412		132,699		7,237
Restructuring and impairment charges, net	4,984		(439)		15,522		1,143
Strategic development and acquisition related costs	10,500		3,642		36,668		5,503
Loss (gain) on disposition of business	—		(1,013)		—		5,673
Gain on insurance recovery	—		(4,741)		—		(4,741)
Income from operations	95,560		54,501		149,126		86,355
Interest income	155		48		491		118
Interest expense	(56,549)		(4,572)		(173,134)		(16,913)
Foreign exchange gain (loss)	(616)		(258)		1,084		(92)
Loss on extinguishment of debt	—		—		—		(21,875)
Other income, net	717		345		665		1,072
Income (loss) before income taxes	39,267		50,064		(21,768)		48,665
Provision (benefit) for income taxes	14,103		14,078		(4,448)		13,114
Net income (loss)	25,164		35,986		(17,320)		35,551
Net income allocated to participating securities	(374)		(221)		—		(248)
Net income (loss) applicable to common shares	$	24,790	$	35,765	$	(17,320)	$	35,303
Income (loss) per common share:
Basic	$	0.20	$	0.54	$	(0.14)	$	0.53
Diluted	$	0.20	$	0.54	$	(0.14)	$	0.53
Weighted average number of common shares outstanding:
Basic	125,557		66,335		125,526		66,361
Diluted	125,558		66,438		125,526		66,477

See accompanying notes to consolidated financial statements.

1

CORNERSTONE BUILDING BRANDS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Comprehensive income (loss):
Net income (loss)	$	25,164	$	35,986	$	(17,320)	$	35,551
Other comprehensive loss, net of tax:
Foreign exchange translation gains (losses)	(1,862)		(68)		4,278		(92)
Unrealized loss on derivative instruments	(6,858)		—		(29,604)		—
Other comprehensive loss	(8,720)		(68)		(25,326)		(92)
Comprehensive income (loss)	$	16,444	$	35,918	$	(42,646)	$	35,459

See accompanying notes to consolidated financial statements.

2

CORNERSTONE BUILDING BRANDS, INC. 

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	September 28, 2019		October 28, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	105,244	$	54,272
Restricted cash	3,872		245
Accounts receivable, less allowances of $9,948 and $6,249, respectively	594,681		233,297
Inventories, net	467,916		254,531
Income taxes receivable	27,641		1,012
Investments in debt and equity securities, at market	3,569		5,285
Prepaid expenses and other	74,882		34,821
Assets held for sale	5,018		7,272
Total current assets	1,282,823		590,735
Property, plant and equipment, less accumulated depreciation of $530,490 and $459,931, respectively	643,844		236,240
Lease right-of-use assets	308,256		—
Goodwill	1,677,929		148,291
Intangible assets, net	1,784,937		127,529
Deferred income taxes	—		982
Other assets, net	10,667		6,598
Total assets	$	5,708,456	$	1,110,375
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	25,600	$	4,150
Note payable	—		497
Payable pursuant to a tax receivable agreement	24,760		—
Accounts payable	235,247		170,663
Accrued compensation and benefits	84,951		65,136
Accrued interest	31,996		1,684
Accrued income taxes	18,137		11,685
Current portion of lease liabilities	68,993		—
Other accrued expenses	254,833		81,884
Total current liabilities	744,517		335,699
Long-term debt	3,267,646		403,076
Deferred income taxes	244,062		2,250
Long-term lease liabilities	243,624		—
Other long-term liabilities	280,722		39,085
Total long-term liabilities	4,036,054		444,411
Stockholders’ equity:
Common stock, $0.01 par value; 200,000,000, 125,621,510 and 125,566,409 shares authorized, issued and outstanding at September 28, 2019, respectively; and 100,000,000, 66,264,654 and 66,203,841 shares authorized, issued and outstanding at October 28, 2018, respectively	1,257		663
Additional paid-in capital	1,247,026		523,788
Accumulated deficit	(283,159)		(186,291)
Accumulated other comprehensive loss, net	(36,139)		(6,708)
Treasury stock, at cost (55,101 and 60,813 shares at September 28, 2019 and October 28, 2018, respectively)	(1,100)		(1,187)
Total stockholders’ equity	927,885		330,265
Total liabilities and stockholders’ equity	$	5,708,456	$	1,110,375

See accompanying notes to consolidated financial statements.

3

CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
	Nine Months Ended
	September 28, 2019		July 29, 2018
Cash flows from operating activities:
Net income (loss)	$	(17,320)	$	35,551
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	191,485		30,974
Non-cash interest expense	6,233		1,140
Loss on extinguishment of debt	—		21,875
Share-based compensation expense	10,613		8,909
Loss on disposition of business, net	—		5,092
Gain on insurance recovery	—		(4,741)
Non-cash fair value premium on purchased inventory	16,249		—
Gains on asset sales, net	(335)		(875)
Provision for doubtful accounts	(492)		(177)
Deferred income taxes	(45,192)		(1,676)
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable	(138,329)		(13,512)
Inventories	63,327		(64,882)
Income taxes	1,256		2,446
Prepaid expenses and other	(4,374)		(3,686)
Accounts payable	8,486		34,567
Accrued expenses	(21,005)		6,088
Other, net	(2,783)		(185)
Net cash provided by operating activities	67,819		56,908
Cash flows from investing activities:
Acquisitions, net of cash acquired	(179,184)		—
Capital expenditures	(86,364)		(34,867)
Proceeds from sale of property, plant and equipment	873		6,338
Business disposition, net	—		(1,426)
Proceeds from insurance	—		4,741
Net cash used in investing activities	(264,675)		(25,214)
Cash flows from financing activities:
Proceeds from stock options exercised	—		1,279
Proceeds from ABL facility	290,000		85,000
Payments on ABL facility	(120,000)		(85,000)
Proceeds from term loan	—		415,000
Payments on term loan	(12,810)		(145,184)
Payments on senior notes	—		(265,470)
Payments on note payable	—		(1,245)
Payments of financing costs	—		(6,521)
Payments related to tax withholding for share-based compensation	(231)		(5,048)
Purchases of treasury stock	—		(46,705)
Net cash provided by (used in) financing activities	156,959		(53,894)
Effect of exchange rate changes on cash and cash equivalents	1,406		(92)
Net decrease in cash, cash equivalents and restricted cash	(38,491)		(22,292)
Cash, cash equivalents and restricted cash at beginning of period	147,607		65,794
Cash, cash equivalents and restricted cash at end of period	$	109,116	$	43,502

See accompanying notes to consolidated financial statements.

4

CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
Fiscal Quarters and Transition Period	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Stockholders’ Equity
	Shares	Amount								Shares	Amount
Balance, June 29, 2019	125,588,427	$	1,256	$	1,243,897	$	(308,323)	$	(27,419)	(69,315)	$	(1,207)	$	908,204
Treasury stock purchases	—	—		—		—		—		(12,612)	(64)		(64)
Retirement of treasury shares	(26,826)	—		(171)		—		—		26,826	171		—
Issuance of restricted stock	46,178	1		(1)		—		—		—	—		—
Issuance of common stock for the Ply Gem merger	13,731	—		167		—		—		—	—		167
Other comprehensive loss	—	—		—		—		(8,720)		—	—		(8,720)
Share-based compensation	—	—		3,134		—		—		—	—		3,134
Net income	—	—		—		25,164		—		—	—		25,164
Balance, September 28, 2019	125,621,510	$	1,257	$	1,247,026	$	(283,159)	$	(36,139)	(55,101)	$	(1,100)	$	927,885
Transition Period Beginning Balance, October 28, 2018	66,264,654	$	663	$	523,788	$	(186,291)	$	(6,708)	(60,813)	$	(1,187)	$	330,265
Treasury stock purchases	—	—		—		—		—		(347,040)	(4,128)		(4,128)
Retirement of treasury shares	(296,954)	(3)		(3,634)		—		—		296,954	3,637		—
Issuance of restricted stock	977,226	10		(10)		—		—		—	—		—
Issuance of common stock for the Ply Gem merger	58,638,233	586		712,455		—		—		—	—		713,041
Other comprehensive loss	—	—		—		—		(4,105)		—	—		(4,105)
Share-based compensation	—	—		4,457		—		—		—	—		4,457
Cumulative effect of accounting change	—	—		—		(3,358)		—		—	—		(3,358)
Net loss	—	—		—		(76,190)		—		—	—		(76,190)
Transition Period Ending Balance, December 31, 2018	125,583,159	$	1,256	$	1,237,056	$	(265,839)	$	(10,813)	(110,899)	$	(1,678)	$	959,982
Balance, April 29, 2018	66,252,112	$	663	$	521,190	$	(249,832)	$	(7,555)	(109,793)	$	(2,142)	$	262,324
Treasury stock purchases	—	—		—		—		—		(21,940)	(436)		(436)
Retirement of treasury shares	(22,044)	—		(457)		—		—		22,044	457		—
Issuance of restricted stock	12,657	—		—		—		—		—	—		—
Stock options exercised	21,788	—		239		—		—		—	—		239
Other comprehensive loss	—	—		—		—		(68)		—	—		(68)
Deferred compensation obligation	—	—		(954)		—		—		48,876	954		—
Share-based compensation	—	—		1,041		—		—		—	—		1,041
Net income	—	—		—		35,986		—		—	—		35,986
Balance, July 29, 2018	66,264,513	$	663	$	521,059	$	(213,846)	$	(7,623)	(60,813)	$	(1,167)	$	299,086

5

See accompanying notes to consolidated financial statements.

CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(In thousands, except share data)
(Unaudited)
Fiscal Year to Date Periods	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Stockholders’ Equity
	Shares	Amount								Shares	Amount
December 31, 2018	125,583,159	$	1,256	$	1,237,056	$	(265,839)	$	(10,813)	(110,899)	$	(1,678)	$	959,982
Treasury stock purchases	—	—		—		—		—		(34,724)	(231)		(231)
Retirement of treasury shares	(84,810)	(1)		(722)		—		—		84,810	723		—
Issuance of restricted stock	109,430	2		(2)		—		—		—	—		—
Issuance of common stock for the Ply Gem merger	13,731	—		167		—		—		—	—		167
Other comprehensive loss	—	—		—		—		(25,326)		—	—		(25,326)
Deferred compensation obligation	—	—		(86)		—		—		5,712	86		—
Share-based compensation	—	—		10,613		—		—		—	—		10,613
Net loss	—	—		—		(17,320)		—		—	—		(17,320)
Balance, September 28, 2019	125,621,510	$	1,257	$	1,247,026	$	(283,159)	$	(36,139)	(55,101)	$	(1,100)	$	927,885
Balance, October 29, 2017	68,677,684	$	687	$	562,277	$	(248,046)	$	(7,531)	(291,128)	$	(2,140)	$	305,247
Treasury stock purchases	—	—		—		—		—		(2,938,974)	(51,753)		(51,753)
Retirement of treasury shares	(2,938,974)	(29)		(51,743)		—		—		2,938,974	51,772		—
Issuance of restricted stock	410,379	4		(4)		—		—		181,439	—		—
Stock options exercised	115,424	1		1,278		—		—		—	—		1,279
Other comprehensive loss	—	—		(55)		—		(92)		—	—		(147)
Deferred compensation obligation	—	—		(954)		—		—		48,876	954		—
Share-based compensation	—	—		8,909		—		—		—	—		8,909
Cumulative effect of accounting change	—	—		1,351		(1,351)		—		—	—		—
Net income	—	—		—		35,551		—		—	—		35,551
Balance, July 29, 2018	66,264,513	$	663	$	521,059	$	(213,846)	$	(7,623)	(60,813)	$	(1,167)	$	299,086

See accompanying notes to consolidated financial statements.

6

CORNERSTONE BUILDING BRANDS, INC.

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 28, 2019

(Unaudited)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Change of Name

Effective May 23, 2019, NCI Building Systems, Inc. changed its name to Cornerstone Building Brands, Inc. (together with its subsidiaries, unless otherwise indicated, the “Company,” “Cornerstone,” “NCI”, “we,” “us” or “our”). In connection with the name change, the Company changed its NYSE trading symbol from “NCS” to “CNR”.

Basis of Presentation

The accompanying unaudited consolidated financial statements for Cornerstone Building Brands, Inc. have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, the unaudited consolidated financial statements included herein contain all adjustments, which consist of normal recurring adjustments, necessary to fairly present the Company’s financial position, results of operations and cash flows for the periods indicated. Operating results for the period from January 1, 2019 through September 28, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.

For additional information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 28, 2018 filed with the Securities and Exchange Commission (the “SEC”) on December 19, 2018.

Reporting Periods

On November 16, 2018, the Company’s Board of Directors approved a change to the Company’s fiscal year end from a 52/53 week year with the Company’s fiscal year end on the Sunday closest to October 31 to a calendar year of the twelve-month period from January 1 to December 31. The Company elected to change its fiscal year end in connection with the Merger (as defined below) to align the Company’s fiscal year end with Ply Gem’s (as defined below). As a result of this change, the Company filed a Transition Report on Form 10-Q that included the financial information for the transition period from October 29, 2018 to December 31, 2018, which period is referred to herein as the “Transition Period”. The financial statements contained herein are being filed as part of a Quarterly Report on Form 10-Q for the period from June 30, 2019 through September 28, 2019. References in this Quarterly Report on Form 10-Q to “fiscal year 2018” or “fiscal 2018” refer to the period from October 30, 2017 through October 28, 2018. The results of operations for the three and nine months ended July 29, 2018 are presented herein as the comparable period to the three and nine months ended September 28, 2019. The Company did not recast the consolidated financial statements for the period from June 30, 2018 to September 28, 2018 or January 1, 2018 to September 28, 2018 because the financial reporting processes in place at that time included certain procedures that were completed only on a quarterly basis. Consequently, to recast this period would have been impractical.

The Company’s current fiscal quarters are based on a four-four-five week calendar with periods ending on the Saturday of the last week in the quarter except that December 31st will always be the year-end date. Therefore, the financial results of certain fiscal quarters may not be comparable to prior fiscal quarters.

Change in Operating Segments

For the Transition Period, the Company began reporting results under three reportable segments: (i) Commercial; (ii) Siding; and (iii) Windows, to align with how the Company manages its business, reviews operating performance and allocates resources following the Merger. The Commercial segment will include the aggregate operating results of the Company’s legacy businesses. The Siding and Windows segments will include the operating results of the legacy Ply Gem operating segments.

Gain/Loss on Disposition of Business

During the three and nine months ended July 29, 2018, the Company recognized a $1.0 million gain related to the disposal of a non-strategic product line in the Commercial segment. In the second quarter of fiscal 2018, the Company closed on the sale of CENTRIA International LLC, which owned our China manufacturing facility. The Company recognized a $6.7 million loss on the sale, which is included in the Commercial segment financial results for the nine month period ended July 29, 2018. The disposition did not represent a strategic shift that had a major effect on the Company’s operations or financial results.

7

Gain on Insurance Recovery

In June 2016, the Company experienced a fire at a facility in the Commercial segment. During the third quarter of fiscal 2018, the Company received final proceeds of $4.7 million as reimbursement for new assets acquired and recognized a $4.7 million gain on insurance recovery in the consolidated statements of operations.

Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that total the amounts shown in the consolidated statements of cash flows (in thousands):

	September 28, 2019
Cash and cash equivalents	$	105,244
Restricted cash(1)	3,872
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	109,116

(1)Restricted cash at September 28, 2019 primarily relates to an escrow balance held for an outstanding earnout agreement.

Net Sales

The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), as of October 29, 2018 for the Transition Period. ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies reporting using IFRS and GAAP. The core principle of this update is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

We enter into contracts that pertain to products, which are accounted for as separate performance obligations and are typically one year or less in duration. We do not exercise significant judgment in determining the timing for the satisfaction of performance obligations or the transaction price. Revenue is measured as the amount of consideration expected to be received in exchange for our products. We have elected to apply the practical expedient provided for in ASU No. 2014-09 and have not disclosed information regarding remaining performance obligations that have original expected durations of one year or less. Revenue is generally recognized when the product has shipped from our facility and control has transferred to the customer. For a portion of our business, when we process customer owned material, control is deemed to transfer to the customer as the processing is being completed.

Our revenues are adjusted for variable consideration, which includes customer volume rebates and prompt payment discounts. We measure variable consideration by estimating expected outcomes using analysis and inputs based upon anticipated performance, historical data, and current and forecasted information. Customer returns are recorded as a reduction to sales on an actual basis throughout the year and also include an estimate at the end of each reporting period for future customer returns related to sales recorded prior to the end of the period. The Company generally estimates customer returns based upon the time lag that historically occurs between the sale date and the return date while also factoring in any new business conditions that might impact the historical analysis such as new product introduction. Measurement of variable consideration is reviewed by management periodically and revenue is adjusted accordingly. We do not have significant financing components.

Shipping and handling activities performed by us are considered activities to fulfill the sales of our products. Amounts billed for shipping and handling are included in net sales, while costs incurred for shipping and handling are included in cost of sales.

In accordance with certain contractual arrangements, we receive payment from our customers in advance related to performance obligations that are to be satisfied in the future and recognize such payments as deferred revenue, primarily related to our weathertightness warranties (see Note 11 — Warranty).

8

The following table presents disaggregated revenue disclosure details of net sales by segment (in thousands):

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Commercial Net Sales Disaggregation:
Metal building products	$	320,028	$	384,311	$	914,623	$	964,924
Insulated metal panels	109,322		106,605		332,403		303,910
Metal coil coating	35,556		57,609		123,126		158,109
Total	$	464,906	$	548,525	$	1,370,152	$	1,426,943
Siding Net Sales Disaggregation:
Vinyl siding	$	148,912	$	—	$	400,220	$	—
Metal	75,933		—		199,265		—
Injection molded	17,429		—		47,163		—
Stone	32,254		—		70,441		—
Other products & services	41,271		—		123,512		—
Total	$	315,799	$	—	$	840,601	$	—
Windows Net Sales Disaggregation:
Vinyl windows	$	481,104	$	—	$	1,355,333	$	—
Aluminum windows	11,951		—		39,678		—
Other	11,283		—		39,568		—
Total	$	504,338	$	—	$	1,434,579	$	—
Total Net Sales:	$	1,285,043	$	548,525	$	3,645,332	$	1,426,943

NOTE 2 — ACCOUNTING PRONOUNCEMENTS

Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, to increase transparency and comparability among organizations by recognizing right-of-use assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. Effective January 1, 2019, the Company adopted the guidance initially applying the standard to leases existing at, or entered into after, the January 1, 2019 adoption date. The Company has elected only the package of three transition practical expedients available under the new standard. The short-term lease recognition exemption has been elected for all leases that qualify as well as the practical expedient to not separate lease and non-lease components for all leases other than leases of durable tooling.

The adoption of the new standard resulted in the recognition of additional operating liabilities of $304.1 million with corresponding right-of-use (“ROU”) assets of $304.1 million, based on the present value of the remaining minimum rental payments. The Company recognized no adjustment to opening balance of accumulated deficit as of January 1, 2019. The new standard also provides for practical expedients for an entity’s ongoing accounting. Additional disclosures on leases are included in Note 8 — Leases.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software—General (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. Effective January 1, 2019, the Company early adopted this guidance on a prospective basis. The application of ASU 2018-15 did not have a material impact on our consolidated financial statements.

9

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) as subsequently amended. ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We performed an assessment of the differences between the new revenue standard and current accounting practices. As part of our implementation process, we identified significant revenue streams and evaluated a sample of contracts within each significant revenue stream in order to determine the effect of the standard on our revenue recognition practices. We completed this evaluation and have established new policies, procedures, and internal controls in our adoption of the new revenue standard. We adopted this guidance on a modified retrospective basis, pursuant to which we recorded a $2.6 million adjustment to increase the opening balance of accumulated deficit as of October 29, 2018 (the first day of the Transition Period) for the impact of applying the new revenue standard. The adjustment related to changes in the timing of revenue recognition for our weathertightness warranties in our Commercial segment. Additional disaggregated revenue disclosures are included in Note 1 — Summary of Significant Accounting Policies.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on eight cash flow classification issues with the objective of reducing differences in practice. We adopted this guidance on a retrospective basis in the Transition Period. The application of ASU 2016-15 did not have a material impact on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. We adopted this guidance on a modified retrospective basis, pursuant to which we recorded a $0.7 million adjustment to increase the opening balance of accumulated deficit as of October 29, 2018 (the first day of the Transition Period) for the impact of applying the new standard.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), which clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. Entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. An entity with a material balance of restricted cash and restricted cash equivalents must disclose information about the nature of the restrictions. We adopted this guidance on a retrospective basis in the Transition Period. The adoption of this guidance resulted in restricted cash activity previously included in financing activities on our consolidated statement of cash flows to be included as part of the beginning and ending balances of cash and cash equivalents and restricted cash in our consolidated statements of cash flows.

In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends the requirements related to the income statement presentation of the components of net periodic benefit cost for employer sponsored defined benefit pension and other postretirement benefit plans. Under the new guidance, an entity must disaggregate and present the service cost component of net periodic benefit cost in the same income statement line items as other employee compensation costs arising from services rendered during the period, and only the service cost component will be eligible for capitalization. Other components of net periodic benefit cost will be presented separately from the line items that include the service cost. We adopted this guidance in the Transition Period on a retrospective basis to adopt the requirement for separate presentation of the income statement service cost and other components, and on a prospective transition method to adopt the requirement to limit the capitalization of benefit cost to the service component. The adoption of ASU 2017-07 did not have a material impact on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides clarity on the accounting for modifications of stock-based awards. The Company adopted this guidance on a prospective basis in the Transition Period for share-based payment awards modified on or after the adoption date. The adoption of ASU 2017-09 did not have a material impact on our consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. This ASU’s objectives are to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities; and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. ASU No. 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018. The Company adopted this guidance on a prospective basis for fiscal 2019. The adoption of ASU 2017-12 did not have a material impact on our consolidated financial statements.

10

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires an entity to measure all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now incorporate forward-looking information based on expected losses to estimate credit losses. ASU 2016-13 will be effective for our fiscal year ending December 31, 2020, including interim periods within that fiscal year. We are evaluating the impact that the adoption of this ASU will have on our consolidated financial position, result of operations and cash flows.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies disclosure requirements for fair value measurements under ASC 820, Fair Value Measurement. We will be required to adopt this guidance retrospectively in the annual and interim periods for our fiscal year ending December 31, 2020, with early adoption permitted. We are evaluating the impact of adopting this guidance.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which removes disclosures no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. We will be required to adopt this guidance for our fiscal year ending December 31, 2020, with early adoption permitted. Certain provisions are applied prospectively while others are applied retrospectively. We are evaluating the impact of adopting this guidance.

Additionally, there were various other accounting standards and interpretations issued that the Company has not yet been required to adopt, none of which is expected to have a material impact on the Company’s consolidated financial statements going forward.

NOTE 3 — ACQUISITIONS

Environmental Stoneworks

On January 12, 2019, the Company entered into a Unit Purchase Agreement (the “Purchase Agreement”) with Environmental Materials, LLC, a Delaware limited liability company (“Environmental Stoneworks” or “ESW”), the Members of Environmental Materials, LLC (the “Sellers”) and Charles P. Gallagher and Wayne C. Kocourek, solely in their capacity as the Seller Representative (as defined in the Purchase Agreement), pursuant to which, on February 20, 2019, the Company’s wholly-owned subsidiary, Ply Gem Industries, Inc., purchased from the Sellers 100% of the outstanding limited liability company interests of Environmental Stoneworks (the “Environmental Stoneworks Acquisition”) for total consideration of $182.6 million, subject to certain post-closing adjustments, for Environmental Stoneworks. The transaction was financed through borrowings under the Company’s asset-based revolving credit facility.

The Environmental Stoneworks Acquisition, when combined with the Company’s existing stone businesses, positions the Company as a market leader in stone veneer. The Company accounted for the transaction as an acquisition in accordance with the provisions of Accounting Standards Codification 805, Business Combinations, which results in a new valuation for the assets and liabilities of Environmental Stoneworks based upon fair values as of the closing date.

11

The Company determined the fair value of the tangible and intangible assets and the liabilities acquired, and recorded goodwill based on the excess of fair value of the acquisition consideration over such fair values, as follows (in thousands):

Assets acquired:
Restricted cash	$	3,379
Accounts receivable	17,134
Inventories	13,062
Prepaid expenses and other current assets	3,677
Property, plant and equipment	14,295
Lease right of use assets	11,372
Intangible assets (trade names/customer relationships)	91,170
Goodwill	60,487
Other assets	157
Total assets acquired	214,733
Liabilities assumed:
Accounts payable	5,910
Other accrued expenses	11,445
Lease liabilities	11,365
Other long-term liabilities	3,450
Total liabilities assumed	32,170
Net assets acquired	$	182,563

The $60.5 million of goodwill was allocated to the Siding segment and none of the goodwill is expected to be deductible for tax purposes. The goodwill is attributable to the workforce of the acquired business and the synergies expected to be realized.

During the nine months ended September 28, 2019, the Company incurred $1.5 million of acquisition-related costs for Environmental Stoneworks, which are recorded in strategic development and acquisition related costs in the Company’s consolidated statements of operations. There were no significant acquisition-related costs incurred during the three months ended September 28, 2019.

The final acquisition accounting allocation for the Environmental Stoneworks Acquisition remains subject to further adjustments. The specific accounts subject to ongoing acquisition accounting adjustments include accounts receivable, inventories, prepaid expenses and other current assets, goodwill, intangibles, accounts payable, accrued expenses, accrued warranties and other liabilities. Therefore, the measurement period remained open as of September 28, 2019, and the preliminary acquisition accounting allocation detailed above is subject to further adjustment. The Company anticipates completing these acquisition accounting adjustments during the fourth quarter of fiscal 2019.

12

Ply Gem Merger

On July 17, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ply Gem Parent, LLC (“Ply Gem”), and for certain limited purposes as set forth in the Merger Agreement, Clayton, Dubilier & Rice, LLC (“CD&R”), pursuant to which, at the closing of the merger, Ply Gem would be merged with and into NCI, with NCI continuing its existence as a corporation organized under the laws of the State of Delaware (the “Merger”). On November 15, 2018, at a special meeting of NCI shareholders, NCI’s shareholders approved, among other items, the Merger Agreement and the issuance in the Merger of 58,709,067 shares of NCI common stock, par value $0.01 per share (“NCI Common Stock”) in the aggregate, on a pro rata basis, to the holders of all of the equity interests in Ply Gem (the “Stock Issuance”), representing approximately 47% of the total number of shares of NCI Common Stock outstanding following the consummation of the Merger on November 16, 2018 (the “Closing Date”). The total value of shares of NCI Common Stock issued pursuant to the Stock Issuance was approximately $713.9 million based on the number of shares issued multiplied by the NCI Common Stock closing share price of $12.16 on the Closing Date. There are approximately 57,103 shares of NCI Common Stock of the original 58,709,067 that have not yet been issued pending holder identification and have been accrued as purchase consideration within other current liabilities in the consolidated balance sheet at September 28, 2019. For accounting and legal purposes, NCI was the accounting and legal acquirer of Ply Gem as of the Closing Date and Ply Gem’s results have been included within NCI from the Closing Date.

Ply Gem is a leading manufacturer of exterior building products in North America, operating in two segments: Siding and Windows. These two segments produce a comprehensive product line of vinyl siding, designer accents, cellular PVC trim, vinyl fencing, vinyl railing, stone veneer, and vinyl windows and doors used in both the new construction market and the home repair and remodeling market in the United States and Canada. Vinyl building products have the leading share of sales volume in siding and windows in the United States. Ply Gem also manufactures vinyl and aluminum soffit and siding accessories, aluminum trim coil, wood windows, aluminum windows, vinyl and aluminum-clad windows and steel and fiberglass doors, enabling us to bundle complementary and color-matched products and accessories with our core products.

Ply Gem strategically fits into NCI’s existing footprint and broadens its service offering to existing and new customers within the building products industry. The Company accounted for the Merger as an acquisition in accordance with the provisions of Accounting Standards Codification 805, Business Combinations, which results in a new valuation for the assets and liabilities of Ply Gem based upon fair values as of the Closing Date.

In connection with the Merger, on November 16, 2018, NCI assumed (i) the obligations of the company formerly known as Ply Gem Midco, Inc. (“Ply Gem Midco”), a subsidiary of Ply Gem immediately prior to the consummation of the Merger, as borrower under the Current Cash Flow Credit Agreement (as defined below), (ii) the obligations of Ply Gem Midco as parent borrower under the Current ABL Credit Agreement (as defined below) and (iii) the obligations of Ply Gem Midco as issuer under the Current Indenture (as defined below).

On April 12, 2018, Ply Gem Midco entered into a Cash Flow Credit Agreement (the “Current Cash Flow Credit Agreement”), by and among Ply Gem Midco, JP Morgan Chase Bank, N.A., as administrative agent and collateral agent (the “Cash Flow Agent”), and the several banks and other financial institutions from time to time party thereto. As of November 16, 2018, immediately prior to consummation of the Merger, the Current Cash Flow Credit Agreement provided for (i) a term loan facility (the “Current Term Loan Facility”) in an original aggregate principal amount of $1,755.0 million and (ii) a cash flow-based revolving credit facility (the “Current Cash Flow Revolver” and together with the Current Term Loan Facility, the “Current Cash Flow Facilities”) of up to $115.0 million. On November 16, 2018, Ply Gem Midco entered into a Lender Joinder Agreement, by and among Ply Gem Midco, the additional commitment lender party thereto and the Cash Flow Agent, which amended the Current Cash Flow Credit Agreement in order to, among other things, increase the aggregate principal amount of the Current Term Loan Facility by $805.0 million (the “Incremental Term Loans”). Proceeds of the Incremental Term Loans were used to, among other things, (a) finance the Merger and to pay certain fees, premiums and expenses incurred in connection therewith, (b) repay in full amounts outstanding under the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement (each as defined below) and (c) repay $325.0 million of borrowings outstanding under the Current ABL Facility (as defined below). On November 16, 2018, in connection with the consummation of the Merger, NCI and Ply Gem Midco entered into a joinder agreement with respect to the Current Cash Flow Facilities, and NCI became the Borrower (as defined in the Current Cash Flow Credit Agreement) under the Current Cash Flow Facilities. The Current Term Loan Facility amortizes in nominal quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum, with the remaining balance payable upon final maturity of the Current Term Loan Facility on April 12, 2025. There are no amortization payments under the Current Cash Flow Revolver, and all borrowings under the Current Cash Flow Revolver mature on April 12, 2023. At November 16, 2018, following consummation of the Merger, there was $2,555.6 million outstanding under the Current Term Loan Facility and there were no amounts drawn on the Current Cash Flow Revolver.

13

On April 12, 2018, Ply Gem Midco and certain subsidiaries of Ply Gem Midco entered into an ABL Credit Agreement (the “Current ABL Credit Agreement”), by and among Ply Gem Midco, the subsidiary borrowers from time to time party thereto, UBS AG, Stamford Branch, as administrative agent and collateral agent (the “ABL Agent”), and the several banks and other financial institutions from time to time party thereto, which provided for an asset-based revolving credit facility (the “Current ABL Facility”) of up to $360.0 million, consisting of (i) $285.0 million available to U.S. borrowers (subject to U.S. borrowing base availability) (the “ABL U.S. Facility”) and (ii) $75.0 million available to both U.S. borrowers and Canadian borrowers (subject to U.S. borrowing base and Canadian borrowing base availability) (the “ABL Canadian Facility”). On October 15, 2018, Ply Gem Midco entered into Amendment No. 2 to the Current ABL Credit Agreement, by and among Ply Gem Midco, the incremental lender party thereto and the ABL Agent, which amended the Current ABL Credit Agreement in order to, among other things, increase the aggregate commitments under the Current ABL Facility by $36.0 million to $396.0 million overall, and with the (x) ABL U.S. Facility being increased from $285.0 million to $313.5 million and (y) the ABL Canadian Facility being increased from $75.0 million to $82.5 million. On November 16, 2018, Ply Gem Midco entered into Amendment No. 4 to the Current ABL Credit Agreement, by and among Ply Gem Midco, the incremental lenders party thereto and the ABL Agent, which amended the Current ABL Credit Agreement in order to, among other things, increase the aggregate commitments under the Current ABL Facility by $215.0 million (the “Incremental ABL Commitments”) to $611.0 million overall, and with the (x) ABL U.S. Facility being increased from $313.5 million to approximately $483.7 million and (y) the ABL Canadian Facility being increased from $82.5 million to approximately $127.3 million. On November 16, 2018, in connection with the consummation of the Merger, NCI and Ply Gem Midco entered into a joinder agreement with respect to the Current ABL Facility, and NCI became the Parent Borrower (as defined in the Current ABL Credit Agreement) under the Current ABL Facility. The Company and, at the Company’s option, certain of the Company’s subsidiaries are the borrowers under the Current ABL Facility. As of November 16, 2018, and following consummation of the Merger, (a) Ply Gem Industries, Inc., Atrium Windows and Doors, Inc., NCI Group, Inc. and Robertson-Ceco II Corporation were U.S. subsidiary borrowers under the Current ABL Facility, and (b) Gienow Canada Inc., Mitten Inc., North Star Manufacturing (London) Ltd. and Robertson Building Systems Limited were Canadian borrowers under the Current ABL Facility. All borrowings under the Current ABL Facility mature on April 12, 2023. At November 16, 2018, following consummation of the Merger, there were no amounts drawn and $24.7 million of letters of credit issued under the Current ABL Facility.

On April 12, 2018, Ply Gem Midco issued $645.0 million aggregate principal amount of 8.00% Senior Notes due 2026 (the “8.00% Senior Notes”). The 8.00% Senior Notes were issued pursuant to an Indenture, dated as of April 12, 2018 (as supplemented from time to time, the “Current Indenture”), by and among Ply Gem Midco, as issuer, the subsidiary guarantors from time to time party thereto and Wilmington Trust, National Association, as trustee. On November 16, 2018, in connection with the consummation of the Merger, the Company entered into a supplemental indenture and assumed the obligations of Ply Gem Midco as issuer under the Current Indenture and the 8.00% Senior Notes. The 8.00% Senior Notes bear interest at 8.00% per annum and will mature on April 15, 2026. Interest is payable semi-annually in arrears on April 15 and October 15.

On November 16, 2018, in connection with the incurrence by Ply Gem Midco of the Incremental Term Loans and the obtaining by Ply Gem Midco of the Incremental ABL Commitments, following consummation of the Merger, the Company (a) terminated all outstanding commitments and repaid all outstanding amounts under the Term Loan Credit Agreement, dated as of February 8, 2018 (the “Pre-merger Term Loan Credit Agreement”), by and among the Company, as borrower, the several banks and other financial institutions from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and (b) terminated all outstanding commitments and repaid all outstanding amounts under the ABL Credit Agreement, dated as of February 8, 2018 (the “Pre-merger ABL Credit Agreement”), by and among NCI Group, Inc. and Robertson-Ceco II Corporation, as borrowers, the Company, as a guarantor, the other borrowers from time to time party thereto, the several banks and other financial institutions from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent and collateral agent. Outstanding letters of credit under the Pre-merger ABL Credit Agreement were cash collateralized.

In connection with the termination and repayment of the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement, the Company also terminated (i) the Term Loan Guarantee and Collateral Agreement, dated as of February 8, 2018, made by the Company and certain of its subsidiaries, in favor of Credit Suisse AG, Cayman Islands Branch, as collateral agent, (ii) the ABL Guarantee and Collateral Agreement, dated as of February 8, 2018, made by the Company and certain of its subsidiaries, in favor of Wells Fargo Bank, National Association, as collateral agent, and (iii) the Intercreditor Agreement, dated as of February 8, 2018, between Credit Suisse AG, Cayman Islands Branch and Wells Fargo Bank, National Association, and acknowledged by the Company and certain of its subsidiaries.

14

Purchase Price Allocation

The Company’s total purchase consideration in the Merger was equal to $728.9 million and is comprised of the Stock Issuance of $713.9 million and a cash payment of $15.0 million by the Company to settle certain third-party fees and expenses incurred by Ply Gem. The Company determined the fair values of the tangible and intangible assets acquired and the liabilities assumed in the Merger, and recorded goodwill based on the excess of fair value of the acquisition consideration over such fair values, as follows (in thousands):

Assets acquired:
Cash	$	102,121
Accounts receivable	345,801
Inventories	301,513
Prepaid expenses and other current assets	51,223
Property, plant and equipment	364,981
Intangible assets (trade names/customer relationships)	1,720,000
Goodwill	1,469,563
Other assets	3,262
Total assets acquired	4,358,464
Liabilities assumed:
Accounts payable	139,955
Tax receivable agreement liability	47,355
Other accrued expenses (inclusive of $25.3 million for current warranty liabilities)	246,341
Debt (inclusive of current portion)	2,674,767
Other long-term liabilities ($163.6 million for accrued long-term warranty)	163,561
Deferred income taxes	325,593
Other long-term liabilities	31,947
Total liabilities assumed	3,629,519
Net assets acquired	$	728,945

At the acquisition date, $840.6 million of goodwill allocated to the Siding segment and $629.0 million allocated to the Windows segment and none of the goodwill is expected to be deductible for tax purposes. The goodwill is attributable to the workforce of the acquired business and the synergies expected to be realized.

The final acquisition accounting allocation for the Merger remains subject to further adjustments. The specific accounts subject to ongoing acquisition accounting adjustments include various income tax assets and liabilities, accounts receivable, inventories, goodwill, intangibles, accrued expenses, accrued warranties and other liabilities. Therefore, the measurement period remained open as of September 28, 2019, and the preliminary acquisition accounting allocation detailed above is subject to further adjustment. The Company anticipates completing these acquisition accounting adjustments during the fourth quarter of fiscal 2019.

15

Unaudited Pro Forma Financial Information

During the three and nine months ended September 28, 2019, Environmental Stoneworks contributed net sales of $45.4 million and $108.2 million, respectively, and net income of $2.8 million and $5.8 million, respectively, which has been included within the Company’s consolidated statement of operations. The following table provides unaudited supplemental pro forma results for Cornerstone, prepared in accordance with ASC 805, for the three and nine months ended September 28, 2019 and July 29, 2018 as if the Environmental Stoneworks and Ply Gem (disclosed below) acquisitions had occurred on October 30, 2017 (beginning of the nine months ended July 29, 2018) (in thousands except for per share data):

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Net sales	$	1,285,043	$	1,381,820	$	3,661,428	$	3,668,062
Net income (loss) applicable to common shares	28,456		(56,165)		10,532		(221,019)
Net income (loss) per common share:
Basic	$	0.23	$	(0.45)	$	0.08	$	(1.76)
Diluted	$	0.23	$	(0.45)	$	0.08	$	(1.76)

The unaudited supplemental pro forma financial information was prepared based on the historical information of Cornerstone, Ply Gem and Environmental Stoneworks. Material pro forma adjustments related to the Environmental Stoneworks and Ply Gem acquisitions include approximately $70.3 million of certain acquisition and compensation costs and $37.9 million of non-cash charges of purchase price allocated to inventories, which were reflected in the pro forma results as if they were incurred on October 30, 2017. Other material pro forma adjustments include adjustments to depreciation and amortization expense and interest expense related to the Environmental Stoneworks and Ply Gem acquisitions.

The unaudited supplemental pro forma financial information does not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the two acquisitions or any integration costs. Unaudited pro forma balances are not necessarily indicative of operating results had the Environmental Stoneworks and Ply Gem acquisitions occurred on October 30, 2017 or of future results.

NOTE 4 — GOODWILL

The Company’s goodwill balance and changes in the carrying amount of goodwill by segment follows (in thousands):

	Commercial		Siding		Windows		Total
Balance, October 28, 2018	$	148,291	$	—	$	—	$	148,291
Goodwill recognized from Merger	—		854,606		639,447		1,494,053
Currency translation	—		(1,220)		(913)		(2,133)
Balance, December 31, 2018	$	148,291	$	853,386	$	638,534	$	1,640,211
Goodwill recognized from Environmental Stoneworks Acquisition	—		60,487		—		60,487
Currency translation	—		985		736		1,721
Purchase accounting adjustments	—		(14,009)		(10,481)		(24,490)
Balance, September 28, 2019	$	148,291	$	900,849	$	628,789	$	1,677,929

NOTE 5 — INVENTORIES

The components of inventory are as follows (in thousands):

	September 28, 2019		October 28, 2018
Raw materials	$	265,888	$	205,902
Work in process and finished goods	202,028		48,629
	$	467,916	$	254,531

16

NOTE 6 — INTANGIBLES

The table that follows presents the major components of intangible assets as of September 28, 2019 and October 28, 2018 (in thousands):

	Range of Life (Years)			Cost		Accumulated Amortization		Net Carrying Value
As of September 28, 2019
Amortized intangible assets:
Trademarks/Trade names(1)	6	–	15	$	252,942	$	(34,257)	$	218,685
Customer lists and relationships	5	–	20	1,737,060		(170,808)		1,566,252
Total intangible assets				$	1,990,002	$	(205,065)	$	1,784,937
(1) During the nine months ended September 28, 2019, the Company began amortization of trade names previously classified as indefinite-lived over an eight-year period.
	Range of Life (Years)			Cost		Accumulated Amortization		Net Carrying Value
As of October 28, 2018
Amortized intangible assets:
Trademarks/Trade names		15		$	29,167	$	(12,657)	$	16,510
Customer lists and relationships	12	–	20	136,210		(38,646)		97,564
Indefinite-lived intangible assets:
Trade names				13,455		—		13,455
Total intangible assets				$	178,832	$	(51,303)	$	127,529

NOTE 7 — ASSETS HELD FOR SALE

We record assets held for sale at the lower of the carrying value or fair value less costs to sell. The following criteria are used to determine if property is held for sale: (i) management has the authority and commits to a plan to sell the property; (ii) the property is available for immediate sale in its present condition; (iii) there is an active program to locate a buyer and the plan to sell the property has been initiated; (iv) the sale of the property is probable within one year; (v) the property is being actively marketed at a reasonable sale price relative to its current fair value; and (vi) it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made.

In determining the fair value of the assets less cost to sell, we consider factors including current sales prices for comparable assets in the area, recent market analysis studies, appraisals and any recent legitimate offers. If the estimated fair value less cost to sell of an asset is less than its current carrying value, the asset is written down to its estimated fair value less cost to sell. The total carrying value of assets held for sale was $5.0 million and $7.3 million as of September 28, 2019 and October 28, 2018, respectively. All of these assets continued to be actively marketed for sale or were under contract as of September 28, 2019.

During the nine months ended September 28, 2019 the Company determined an alternative use for a facility in the Commercial segment that had previously been classified as held for sale and reclassified the net book value of $1.7 million to property, plant and equipment and recorded an immaterial depreciation adjustment. Additionally, during the nine months ended September 28, 2019, the Company closed on the sale of an idled facility in the Commercial segment which had previously been classified as held for sale. In connection with the sale we received net proceeds of $0.9 million and recognized a net gain of $0.3 million, which is included in restructuring and impairment charges, net, in the consolidated statements of operations for the nine months ended September 28, 2019.

17

Due to uncertainties in the estimation process, actual results could differ from the estimates used in our historical analysis. Our assumptions about property sales prices require significant judgment because the current market is highly sensitive to changes in economic conditions. We determined the estimated fair values of assets held for sale based on current market conditions and assumptions made by management, which may differ from actual results and may result in impairments if market conditions deteriorate. Certain assets held for sale are valued at fair value and are measured at fair value on a nonrecurring basis. Assets held for sale are reported at fair value, if, on an individual basis, the fair value of the asset is less than carrying value. The fair value of assets held for sale is estimated using Level 3 inputs, such as broker quotes for like-kind assets or other market indications of a potential selling value that approximates fair value. Assets held for sale, reported at fair value, less costs to sell, totaled $5.0 million as of September 28, 2019.

NOTE 8 — LEASES

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases, applying the standard to leases existing at the effective date. For arrangements entered into following the transition date, applicability of the standard is determined at inception.

The Company leases certain manufacturing, warehouse and distribution locations, vehicles and equipment, including fleet vehicles. Many of these leases have options to terminate prior to or extend beyond the end of the term. The exercise of the majority of lease renewal options is at the Company’s sole discretion. Some lease agreements have variable payments, the majority of these are real estate agreements in which future increases in rent are based on an index. Lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating lease liabilities are recognized based on the present value of the future minimum lease payments over the reasonably expected holding period at commencement date. Few of the Company’s lease contracts provide a readily determinable implicit rate. For these contracts, an estimated incremental borrowing rate (“IBR”) is utilized, based on information available at the inception of the lease. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease.

Weighted average information about the Company’s lease portfolio as of September 28, 2019 was as follows:

Weighted-average remaining lease term	5.6 years
Weighted-average IBR	6.08	%

Operating lease costs for the three and nine months ended September 28, 2019 were as follows (in thousands):

	Three Months Ended		Nine Months Ended
	September 28, 2019		September 28, 2019
Operating lease costs
Fixed lease costs	$	23,903	$	77,125
Variable lease costs(1)	8,654		27,868
(1) Includes short-term lease costs, which are immaterial.

Cash and non-cash activities for the three and nine months ended September 28, 2019 were as follows (in thousands):

	Three Months Ended		Nine Months Ended
	September 28, 2019		September 28, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	23,463	$	66,936
Right-of-use assets obtained in exchange for new operating lease liabilities	$	47,236	$	372,269

18

Future minimum lease payments under non-cancelable leases as of September 28, 2019 were as follows (in thousands):

	Operating Leases
2019 (excluding the nine months ended September 28, 2019)	$	23,640
2020	86,617
2021	76,607
2022	61,548
2023	34,935
Thereafter	119,393
Total future minimum lease payments	402,740
Less: interest	90,123
Present value of future minimum lease payments	$	312,617
As of September 28, 2019
Current portion of lease liabilities	$	68,993
Long-term portion of lease liabilities	243,624
Total	$	312,617

NOTE 9 — SHARE-BASED COMPENSATION

Our 2003 Long-Term Stock Incentive Plan, as amended (the “Incentive Plan”), is an equity-based compensation plan that allows us to grant a variety of types of awards, including stock options, restricted stock awards, stock appreciation rights, cash awards, phantom stock awards, restricted stock unit awards and long-term incentive awards with performance conditions (“Performance Share Awards”). Awards are generally granted once per year, with the amounts and types of awards determined by the Compensation Committee of our Board of Directors (the “Committee”). In connection with the Merger, on November 16, 2018 awards were granted to certain senior executives and key employees (the “Founders Awards”), which included stock options, restricted stock units (“RSUs”) and performance share units (“PSUs”). A portion of the Founders Awards was not granted under the Incentive Plan but was instead granted pursuant to a separate equity-based compensation plan, the Long-Term Incentive Plan consisting of award agreements for select Founders Awards. However, these awards were subject to the same terms and provisions as awards of the same type granted under the Incentive Plan.

As of September 28, 2019, and for all periods presented, the Founders Awards and our share-based awards under the Incentive Plan have consisted of RSUs, PSUs and stock option grants, none of which can be settled through cash payments, and Performance Share Awards, which are settled in cash. Both our stock options and restricted stock awards are subject only to vesting requirements based on continued employment at the end of a specified time period and typically vest in annual increments over three to five years or earlier upon death, disability or a change of control. Restricted stock awards do not vest upon attainment of a specified retirement age, as provided by the agreements governing such awards. The vesting of our Performance Share Awards is described below.

As a general rule, option awards terminate on the earlier of (i) 10 years from the date of grant, (ii) 60 days after termination of employment or service for a reason other than death, disability or retirement, or (iii) 180 days after death, disability or retirement. Awards are non-transferable except by disposition on death or to certain family members, trusts and other family entities as the Committee may approve. Awards may be paid in cash, shares of our Common Stock or a combination, in lump sum or installments and currently or by deferred payment, all as determined by the Committee.

Our time-based restricted stock awards are typically subject to graded vesting over a service period, which is three or five years. Our performance-based and market-based restricted stock awards are typically subject to cliff vesting at the end of the service period, which is typically three years. Our share-based compensation arrangements are equity classified and we recognize compensation cost for these awards on a straight-line basis over the requisite service period for each award grant. In the case of performance-based awards, expense is recognized based upon management’s assessment of the probability that such performance conditions will be achieved. Certain of our awards provide for accelerated vesting upon a change of control or upon termination without cause or for good reason.

19

Founders Awards granted to our senior executives and certain key employees included options, RSUs and PSUs. The options and RSUs vest subject to continued employment 20% per year on the first through fifth anniversary of the award. Vesting of the PSUs is contingent upon the achievement of synergies captured from the Merger and continued employment during a three-year performance period beginning on the grant date. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts. The PSUs vest pro rata if an executive’s employment terminates after 50% of the service period has passed and prior to the end of the performance period due to death, disability, or termination by the Company without cause or by the executive for good reason. If an executive’s employment terminates for any other reason prior to the end of the performance period, all outstanding unvested PSUs, whether earned or unearned, are forfeited and cancelled. If a change in control of the Company occurs, and the plan is not accepted by the successor entity, prior to the end of the performance period, the PSU payout is calculated and paid assuming that the maximum benefit had been achieved. If the plan is accepted, awards will continue to vest as RSUs with a double trigger acceleration upon termination by the Company without cause or by the executive for good reason. If an executive’s employment terminates due to death or disability while any of the restricted stock is unvested, then all of the unvested restricted stock shall become vested. If an executive’s employment is terminated by the Company without cause or by the executive for good reason, the unvested restricted stock is forfeited. If a change in control of the Company occurs, and the plan is not accepted by the successor entity, prior to the end of the performance period, the restricted stock fully vests. If the plan is accepted, awards will continue to vest with a double trigger acceleration upon termination by the Company without cause or by the executive for good reason. The fair value of the awards is based on the Company’s stock price as of the date of grant.

Stock option awards

During the nine months ended September 28, 2019, we granted 0.4 million stock options. The average grant date fair value of options granted during the nine months ended September 28, 2019 was $1.97 per share. We did not grant stock options during the nine months ended July 29, 2018. No options were exercised during the nine months ended September 28, 2019. During the nine months ended July 29, 2018, 0.1 million options with an intrinsic value of $0.8 million were exercised and cash received from options exercised was $1.3 million.

Restricted stock units and performance share units

Annual awards to our key employees generally have a three-year performance period. The fair value of RSUs awarded is based on the Company’s stock price as of the date of grant. During the nine months ended September 28, 2019, we granted RSUs to key employees with a fair value of $2.8 million representing approximately 0.5 million shares. During the nine months ended July 29, 2018, we granted RSUs with a fair value of $6.8 million, representing 0.3 million shares.

During the nine months ended September 28, 2019, we granted PSUs with a total fair value of approximately $0.4 million to key employees. During the nine months ended July 29, 2018, we granted PSUs with a total fair value of approximately $3.8 million and $2.8 million, to the Company’s senior executives and key employees, respectively. On November 16, 2018, upon consummation of the Merger, certain PSUs that were issued in fiscal 2017 and fiscal 2018 converted to RSUs at 100% and continue to vest in accordance with the original schedule, as the Board of Directors approved the treatment of existing awards, at the Merger date, as if a change in control had occurred, per the respective agreements governing each award.

Share-based compensation expense

During the three and nine months ended September 28, 2019 we recorded share-based compensation expense for all awards of $3.1 million and $10.6 million, respectively. During the three and nine months ended July 29, 2018, we recorded share-based compensation expense for all awards of $1.0 million and $8.9 million, respectively. Share-based compensation expense for the nine months ended July 29, 2018 included accelerated awards of $3.6 million due to the retirement of the Company’s former CEO.

20

NOTE 10 — EARNINGS PER COMMON SHARE

Basic earnings per common share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding. Diluted earnings per common share, if applicable, considers the dilutive effect of common stock equivalents. The reconciliation of the numerator and denominator used for the computation of basic and diluted earnings per common share is as follows (in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Numerator for Basic and Diluted Earnings Per Common Share
Net income (loss) applicable to common shares	$	24,790	$	35,765	$	(17,320)	$	35,303
Denominator for Basic and Diluted Income Per Common Share
Weighted average basic number of common shares outstanding	125,557		66,335		125,526		66,361
Common stock equivalents:
Employee stock options	1		95		—		98
PSUs and Performance Share Awards	—		8		—		18
Weighted average diluted number of common shares outstanding	125,558		66,438		125,526		66,477
Basic income (loss) per common share	$	0.20	$	0.54	$	(0.14)	$	0.53
Diluted income (loss) per common share	$	0.20	$	0.54	$	(0.14)	$	0.53
Incentive Plan securities excluded from dilution(1)	5,189		—		4,974		—

(1)Represents securities not included in the computation of diluted earnings per common share because their effect would have been anti-dilutive.

We calculate earnings per share using the “two-class” method, whereby unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are “participating securities” and, therefore, these participating securities are treated as a separate class in computing earnings per share. The calculation of earnings per share presented here excludes the income attributable to unvested restricted stock units related to our Incentive Plan from the numerator and excludes the dilutive impact of those shares from the denominator. Awards subject to the achievement of performance conditions or market conditions for which such conditions had been met at the end of any of the fiscal periods presented are included in the computation of diluted earnings per common share if their effect was dilutive.

NOTE 11 — WARRANTY

The Company sells a number of products and offers a number of warranties. The specific terms and conditions of these warranties vary depending on the product sold. Upon the sale of a weathertightness warranty, we record the resulting revenue as deferred revenue, which is included in other accrued expenses and other long-term liabilities on our consolidated balance sheets depending on when the revenues are expected to be recognized. Factors that affect the Company’s warranty liabilities include the number of units sold, historical and anticipated rates of warranty claims, cost per claim and new product introduction. The Company assesses the adequacy of the recorded warranty claims and adjusts the amounts as necessary.

21

The following table represents the rollforward of our accrued warranty obligation and deferred warranty revenue activity for the nine months ended September 28, 2019 and July 29, 2018 (in thousands):

	Nine Months Ended
	September 28, 2019		July 29, 2018
Beginning balance	$	134,515	$	32,418
Purchase accounting adjustments	84,280		—
Warranties sold	2,313		2,616
Revenue recognized	(2,075)		(1,971)
Expense	22,006		—
Settlements	(22,285)		(1,654)
Ending balance	218,754		31,409
Less: current portion	31,294		5,970
Total, less current portion	$	187,460	$	25,439

The Company records the current warranty obligation within other accrued expenses and the long-term warranty obligation within other long-term liabilities within the Company’s consolidated balance sheets at September 28, 2019 and October 28, 2018.

NOTE 12 — DEFINED BENEFIT PLANS

RCC Pension Plan — With the acquisition of Robertson-Ceco II Corporation (“RCC”) on April 7, 2006, we assumed a defined benefit plan (the “RCC Pension Plan”). Benefits under the RCC Pension Plan are primarily based on years of service and the employee’s compensation. The RCC Pension Plan is frozen and, therefore, employees do not accrue additional service benefits. Plan assets of the RCC Pension Plan are invested in broadly diversified portfolios of government obligations, mutual funds, stocks, bonds, fixed income securities and master limited partnerships.

CENTRIA Benefit Plans — As a result of the CENTRIA Acquisition on January 16, 2015, we assumed noncontributory defined benefit plans covering certain hourly employees (the “CENTRIA Benefit Plans”) which are closed to new participants. Benefits under the CENTRIA Benefit Plans are calculated based on fixed amounts for each year of service rendered, although benefits accruals for one of the plans previously ceased. Plan assets of the CENTRIA Benefit Plans are invested in broadly diversified portfolios of domestic and international equity mutual funds, bonds, mortgages and other funds. CENTRIA also sponsors postretirement medical and life insurance plans that cover certain of its employees and their spouses (the “OPEB Plans”).

In addition to the CENTRIA Benefit Plans, CENTRIA contributes to a multi-employer plan, the Steelworkers Pension Trust. The minimum required annual contribution to this plan is $0.3 million. The current contract expires on June 1, 2022. If we were to withdraw our participation from this multi-employer plan, CENTRIA may be required to pay a withdrawal liability representing an amount based on the underfunded status of the plan. The plan is not significant to the Company’s consolidated financial statements.

Ply Gem Pension Plans — As a result of the Merger on November 16, 2018, we assumed the Ply Gem Group Pension Plan (the “Ply Gem Plan”) and the MW Manufacturers, Inc Retirement Plan (the “MW Plan”). The Ply Gem Plan was frozen during 1998, and no further increases in benefits for participants may occur as a result of increases in service years or compensation. The MW Plan was frozen for salaried participants during 2004 and non-salaried participants during 2005. No additional participants may enter the plan, but increases in benefits for participants as a result of increase in service years or compensation will occur.

We refer to the RCC Pension Plan, the CENTRIA Benefit Plans, the Ply Gem Plan and the MW Plan collectively as the “Defined Benefit Plans” in this Note.

22

The following table sets forth the components of the net periodic benefit cost, before tax, and funding contributions, for the periods indicated (in thousands):

	Three Months Ended September 28, 2019						Three Months Ended July 29, 2018
	Defined Benefit Plans		OPEB Plans		Total		Defined Benefit Plans		OPEB Plans		Total
Service cost	$	11	$	6	$	17	$	22	$	7	$	29
Interest cost	974		66		1,040		494		62		556
Expected return on assets	(1,234)		—		(1,234)		(729)		—		(729)
Amortization of prior service cost	15		—		15		15		—		15
Amortization of net actuarial loss	704		—		704		248		—		248
Net periodic benefit cost	$	470	$	72	$	542	$	50	$	69	$	119
	Nine Months Ended September 28, 2019						Nine Months Ended July 29, 2018
	Defined Benefit Plans		OPEB Plans		Total		Defined Benefit Plans		OPEB Plans		Total
Service cost	$	32	$	17	$	49	$	65	$	21	$	86
Interest cost	2,922		197		3,119		1,481		185		1,666
Expected return on assets	(3,701)		—		(3,701)		(2,187)		—		(2,187)
Amortization of prior service cost	43		—		43		43		—		43
Amortization of net actuarial loss	2,112		—		2,112		743		—		743
Net periodic benefit cost	$	1,408	$	214	$	1,622	$	145	$	206	$	351

We expect to contribute $2.3 million to the Defined Benefit Plans in the year ending December 31, 2019. Our policy is to fund the CENTRIA Benefit Plans as required by minimum funding standards of the Internal Revenue Code. The contributions to the OPEB Plans by retirees vary from none to 25% of the total premiums paid.

NOTE 13 — LONG-TERM DEBT AND NOTE PAYABLE

Debt is comprised of the following (in thousands):

	September 28, 2019		October 28, 2018
Asset-based revolving credit facility due April 2023	$	170,000	$	—
Asset-based revolving credit facility due February 2023	—		—
Term loan facility due April 2025	2,536,397		—
Term loan facility due February 2025	—		412,925
Cash flow revolver due April 2023	—		—
8.00% senior notes due April 2026	645,000		—
Less: unamortized discounts and unamortized deferred financing costs(1)	(58,151)		(5,699)
Total long-term debt, net of unamortized discounts and unamortized deferred financing costs	3,293,246		407,226
Less: current portion of long-term debt	25,600		4,150
Total long-term debt, less current portion	$	3,267,646	$	403,076

(1)Includes the unamortized deferred financing costs associated with the term loan facilities and senior notes. The unamortized deferred financing costs associated with the asset-based revolving credit facilities of $2.6 million and $1.1 million as of September 28, 2019 and October 28, 2018, respectively, are classified in other assets on the consolidated balance sheets.

Recent Debt Transactions

In connection with the Merger, on November 16, 2018, the Company assumed (i) the obligations of Ply Gem Midco, a subsidiary of Ply Gem immediately prior to the consummation of the Merger, as borrower under the Current Cash Flow Credit Agreement, (ii) the obligations of Ply Gem Midco as parent borrower under the Current ABL Credit Agreement and (iii) the obligations of Ply Gem Midco as issuer under the Current Indenture.

23

February 2018 Debt Redemption and Refinancing

On February 8, 2018, the Company entered into the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement, the proceeds of which, together, were used to redeem the 8.25% senior notes due 2023 (the “8.25% Senior Notes”) and to refinance the Company’s then-existing term loan credit facility and the Company’s then-existing asset-based revolving credit facility.

Term Loan Credit Agreement due February 2025

On February 8, 2018, the Company entered into the Pre-merger Term Loan Credit Agreement which provided for a term loan credit facility in an original aggregate principal amount of $415.0 million (the “Pre-merger Term Loan Credit Facility”). Proceeds from borrowings under the Pre-merger Term Loan Credit Facility were used, together with cash on hand, (i) to refinance the then existing term loan credit agreement, (ii) to redeem and repay the 8.25% Senior Notes and (iii) to pay any fees, premiums and expenses incurred in connection with the refinancing. On November 16, 2018, the Company repaid the remaining $412.9 million aggregate principal amount of the term loans outstanding under the Pre-merger Term Loan Credit Facility for approximately $413.7 million, reflecting remaining principal and interest, using proceeds from the incremental term loan facility entered into in connection with the Merger.

Term Loan Facility due April 2025 and Cash Flow Revolver due April 2023

On April 12, 2018, Ply Gem Midco entered into the Current Cash Flow Credit Agreement, which provides for (i) a term loan facility (the “Current Term Loan Facility”) in an original aggregate principal amount of $1,755.0 million, issued with a discount of 0.5%, and (ii) a cash flow-based revolving credit facility (the “Current Cash Flow Revolver” and together with the Term Loan Facility, the “Current Cash Flow Facilities”) of up to $115.0 million. The Current Term Loan Facility amortizes in nominal quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum, with the remaining balance payable upon final maturity of the Current Term Loan Facility on April 12, 2025. There are no amortization payments under the Current Cash Flow Revolver, and all borrowings under the Current Cash Flow Revolver mature on April 12, 2023.

On November 16, 2018, the Company entered into an incremental term loan facility in connection with the Merger, which increased the aggregate principal amount of the Current Term Loan Facility by $805.0 million. The proceeds of this incremental term loan facility were used to, among other things, (a) finance the Merger and to pay certain fees, premiums and expenses incurred in connection therewith, (b) repay in full amounts outstanding under the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement and (c) repay $325.0 million of borrowings outstanding under the ABL Facility. On November 16, 2018, in connection with the consummation of the Merger, NCI and Ply Gem Midco entered into a joinder agreement with respect to the Current Cash Flow Facilities, and the Company became the Borrower (as defined in the Current Cash Flow Credit Agreement) under the Current Cash Flow Facilities.

The Current Term Loan Facility bears annual interest at a floating rate measured by reference to, at the Company’s option, either (i) an adjusted LIBOR rate (subject to a floor of 0.00%) plus an applicable margin of 3.75% per annum or (ii) an alternate base rate plus an applicable margin of 2.75% per annum. At September 28, 2019, the interest rates on the Current Term Loan Facility were as follows:

	September 28, 2019
Interest rate	5.79	%
Effective interest rate	6.51	%

The Company entered into certain interest rate swap agreements during the nine months ended September 28, 2019 to convert a portion of its variable rate debt to fixed. See Note 16 - Fair Value of Financial Instruments and Fair Value Measurements.

Loans outstanding under the Current Cash Flow Revolver bear annual interest at a floating rate measured by reference to, at the Company’s option, either (i) an adjusted LIBOR rate (subject to a floor of 0.00%) plus an applicable margin ranging from 2.50% to 3.00% per annum depending on the Company’s secured leverage ratio or (ii) an alternate base rate plus an applicable margin ranging from 1.50% to 2.00% per annum depending on the Company’s secured leverage ratio. Additionally, unused commitments under the Current Cash Flow Revolver are subject to a fee ranging from 0.25% to 0.50% per annum depending on the Company’s secured leverage ratio.

24

The Current Term Loan Facility may be prepaid at the Company’s option at any time, subject to minimum principal amount requirements. Prepayments of the Current Term Loan Facility in connection with a repricing transaction (as defined in the Current Cash Flow Credit Agreement) on or prior to April 12, 2019 are subject to a 1.00% prepayment premium. Prepayments may otherwise be made without premium or penalty (other than customary breakage costs). The Current Cash Flow Revolver may be prepaid at the Company’s option at any time without premium or penalty (other than customary breakage costs), subject to minimum principal amount requirements.

Subject to certain exceptions, the Current Term Loan Facility is subject to mandatory prepayments in an amount equal to:

•the net cash proceeds of (1) certain asset sales, (2) certain debt offerings and (3) certain insurance recovery and condemnation events; and

•50% of annual excess cash flow (as defined in the Cash Flow Credit Agreement), subject to reduction to 25% and 0% if specified secured leverage ratio targets are met to the extent that the amount of such excess cash flow exceeds $10.0 million. The annual excess cash flow assessment will begin with the Company’s 2019 fiscal year, payable within five business days after the delivery of the annual financial statements.

The obligations under the Current Cash Flow Credit Agreement are guaranteed by each direct and indirect wholly-owned U.S. restricted subsidiary of the Company, subject to certain exceptions, and are secured by:

•a perfected security interest in substantially all tangible and intangible assets of the Company and each subsidiary guarantor (other than ABL Priority Collateral (as defined below)), including the capital stock of each direct material wholly-owned U.S. restricted subsidiary owned by the Company and each subsidiary guarantor, and 65% of the capital stock of any non-U.S. subsidiary held directly by the Company or any subsidiary guarantor, subject to certain exceptions (the “Cash Flow Priority Collateral”), which security interest will be senior to the security interest in the foregoing assets securing the Current ABL Facility; and

•a perfected security interest in the ABL Priority Collateral, which security interest will be junior to the security interest in the ABL Priority Collateral securing the Current ABL Facility.

The Current Cash Flow Revolver includes a financial covenant set at a maximum secured leverage ratio of 7.75:1.00, which will apply if the outstanding amount of loans and drawings under letters of credit which have not then been reimbursed exceeds a specified threshold at the end of any fiscal quarter.

ABL Credit Agreement due February 2023

On February 8, 2018, the subsidiaries of the Company, NCI Group, Inc. and Robertson-Ceco II Corporation, and the Company as a guarantor, entered into the Pre-merger ABL Credit Agreement. The Pre-merger ABL Credit Agreement provided for an asset-based revolving credit facility (the “Pre-merger ABL Credit Facility”) which allowed aggregate maximum borrowings by the ABL borrowers of up to $150.0 million, letters of credit of up to $30.0 million and up to $20.0 million for swingline borrowings. Borrowing availability was determined by a monthly borrowing base collateral calculation that is based on specified percentages of the value of accounts receivable, eligible credit card receivables and eligible inventory, less certain reserves and subject to certain other adjustments. Availability was reduced by issuance of letters of credit as well as any borrowings. All borrowings under the Pre-merger ABL Credit Facility would have matured on February 8, 2023. This facility was terminated in connection with the Merger and replaced with the Current ABL Facility (defined below).

ABL Facility due April 2023

On April 12, 2018, Ply Gem Midco entered into the Current ABL Credit Agreement, which provides for an asset-based revolving credit facility (the “Current ABL Facility”) of up to $360.0 million, consisting of (i) $285.0 million available to U.S. borrowers (subject to U.S. borrowing base availability) (the “ABL U.S. Facility”) and (ii) $75.0 million available to both U.S. borrowers and Canadian borrowers (subject to U.S. borrowing base and Canadian borrowing base availability) (the “ABL Canadian Facility”). The Company and, at their option, certain of their subsidiaries are the borrowers under the Current ABL Facility. All borrowings under the Current ABL Facility mature on April 12, 2023.

On October 15, 2018, Ply Gem Midco entered into an incremental asset-based revolving credit facility of $36.0 million, which upsized the Current ABL Facility to $396.0 million in the aggregate, and with (x) the ABL U.S. Facility being increased from $285.0 million to $313.5 million and (y) the ABL Canadian Facility being increased from $75.0 million to $82.5 million.

On November 16, 2018, Ply Gem Midco entered into an incremental asset-based revolving credit facility of $215.0 million in connection with the Merger, which upsized the Current ABL Facility to $611.0 million in the aggregate, and with (x) the ABL U.S. Facility being increased from $313.5 million to approximately $483.7 million and (y) the ABL Canadian Facility being increased from $82.5 million to approximately $127.3 million. On November 16, 2018, in connection with the consummation of the Merger, the Company and Ply Gem Midco entered into a joinder agreement with respect to the Current ABL Facility, and the Company became the Parent Borrower (as defined in the ABL Credit Agreement) under the Current ABL Facility.

25

Borrowing availability under the Current ABL Facility is determined by a monthly borrowing base collateral calculation that is based on specified percentages of the value of eligible inventory, eligible accounts receivable and eligible credit card receivables, less certain reserves and subject to certain other adjustments as set forth in the Current ABL Credit Agreement. Availability is reduced by issuance of letters of credit as well as any borrowings. As of September 28, 2019, the Company had the following in relation to the Current ABL Facility (in thousands):

	September 28, 2019
Excess availability	$	405,976
Revolving loans outstanding	170,000
Letters of credit outstanding	30,311

Loans outstanding under the Current ABL Facility bear interest at a floating rate measured by reference to, at the Company’s option, either (i) an adjusted LIBOR rate (subject to a LIBOR floor of 0.00%) plus an applicable margin ranging from 1.25% to 1.75% per annum depending on the average daily excess availability under the Current ABL Facility or (ii) an alternate base rate plus an applicable margin ranging from 0.25% to 0.75% per annum depending on the average daily excess availability under the ABL Facility. Additionally, unused commitments under the ABL Facility are subject to a 0.25% per annum fee. At September 28, 2019, the weighted average interest rate on the Current ABL Facility was 3.66%.

The obligations under the Current ABL Credit Agreement are guaranteed by each direct and indirect wholly-owned U.S. restricted subsidiary of the Company, subject to certain exceptions, and are secured by:

•a perfected security interest in all present and after-acquired inventory, accounts receivable, deposit accounts, securities accounts, and any cash or other assets in such accounts and other related assets owned by the Company and the U.S. subsidiary guarantors and the proceeds of any of the foregoing, except to the extent such proceeds constitute Cash Flow Priority Collateral, and subject to certain exceptions (the “ABL Priority Collateral”), which security interest is senior to the security interest in the foregoing assets securing the Current Cash Flow Facilities; and

•a perfected security interest in the Cash Flow Priority Collateral, which security interest will be junior to the security interest in the Cash Flow Collateral securing the Current Cash Flow Facilities.

Additionally, the obligations of the Canadian borrowers under the Current ABL Credit Agreement are guaranteed by each direct and indirect wholly-owned Canadian restricted subsidiary of the Canadian borrowers, subject to certain exceptions, and are secured by substantially all assets of the Canadian borrowers and the Canadian subsidiary guarantors, subject to certain exceptions.

The Current ABL Credit Agreement includes a minimum fixed charge coverage ratio of 1.00:1.00, which is tested only when specified availability is less than 10.0% of the lesser of (x) the then applicable borrowing base and (y) the then aggregate effective commitments under the Current ABL Facility, and continuing until such time as specified availability has been in excess of such threshold for a period of 20 consecutive calendar days.

8.00% Senior Notes due April 2026

On April 12, 2018, Ply Gem Midco issued $645.0 million at a discount of 2.25% in aggregate principal amount of 8.00% Senior Notes due April 2026 (the “8.00% Senior Notes”). The 8.00% Senior Notes bear interest at 8.00% per annum and will mature on April 15, 2026. Interest is payable semi-annually in arrears on April 15 and October 15. The effective interest rate for the 8.00% Senior Notes was 8.64% as of September 28, 2019, after considering each of the different interest expense components of this instrument, including the coupon payment and the deferred debt issuance costs.

On November 16, 2018, in connection with the consummation of the Merger, the Company entered into a supplemental indenture and assumed the obligations of Ply Gem Midco as issuer under the Current Indenture.

The 8.00% Senior Notes are guaranteed on a senior unsecured basis by each of the Company’s wholly-owned domestic subsidiaries that guarantee the Company’s obligations under the Current Cash Flow Facilities or the Current ABL Facility (including by reason of being a borrower under the Current ABL Facility on a joint and several basis with the Company or a subsidiary guarantor). The 8.00% Senior Notes are unsecured senior indebtedness and rank equally in right of payment with the Current Cash Flow Facilities and Current ABL Facility. The 8.00% Senior Notes are effectively subordinated to all of the Company’s secured debt, including the Current Cash Flow Facilities and Current ABL Facility, and are senior in right of payment to all subordinated obligations of the Company.

The Company may redeem the 8.00% Senior Notes in whole or in part at any time as set forth below:

•prior to April 15, 2021, the Company may redeem the 8.00% Senior Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to but not including the redemption date, plus the applicable make-whole premium;

26

•prior to April 15, 2021, the Company may redeem up to 40.0% of the original aggregate principal amount of the 8.00% Senior Notes with proceeds of certain equity offerings, at a redemption price of 108%, plus accrued and unpaid interest, if any, to but not including the redemption date; and

•on or after April 15, 2021, the Company may redeem the 8.00% Senior Notes at specified redemption prices starting at 104% and declining ratably to 100.0% by April 15, 2023, plus accrued and unpaid interest, if any, to but not including the redemption date.

Redemption of 8.25% Senior Notes

On January 16, 2015, the Company issued $250.0 million in aggregate principal amount of the 8.25% Senior Notes. On February 8, 2018, the Company redeemed the outstanding $250.0 million aggregate principal amount of the 8.25% Senior Notes for approximately $265.5 million using the proceeds from borrowings under the Pre-merger Term Loan Credit Facility.

During the nine months ended July 29, 2018, the Company incurred a pretax loss, primarily on the extinguishment of the Notes, of $21.9 million, of which approximately $15.5 million represents the call premium paid on the redemption of the Notes.

Debt Covenants

The Company’s debt agreements contain a number of covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries to incur additional indebtedness; make dividends and other restricted payments; incur additional liens; consolidate, merge, sell or otherwise dispose of all or substantially all assets; make investments; transfer or sell assets; enter into restrictive agreements; change the nature of the business; and enter into certain transactions with affiliates. As of September 28, 2019, the Company was in compliance with all covenants that were in effect on such date.

Insurance Note Payable

As of September 28, 2019, the Company had no notes payable outstanding. As of October 28, 2018, the Company had an outstanding note payable in the amount of $0.5 million related to financed insurance premiums. Insurance premium financings are generally secured by the unearned premiums under such policies.

NOTE 14 — CD&R INVESTOR GROUP

On August 14, 2009, the Company entered into an Investment Agreement (as amended, the “Investment Agreement”), by and between the Company and Clayton, Dubilier & Rice Fund VIII, L.P., a Cayman Islands exempted limited partnership (“CD&R Fund VIII”). In connection with the Investment Agreement and the Stockholders Agreement dated October 20, 2009 (the “Old Stockholders Agreement”), CD&R Fund VIII and CD&R Friends & Family Fund VIII, L.P., a Cayman Islands exempted limited partnership (“CD&R FF Fund” and, together with CD&R Fund VIII, the “CD&R Fund VIII Investor Group”) purchased convertible preferred stock of the Company, which was converted into shares of our common stock on May 14, 2013.

On December 11, 2017, the CD&R Fund VIII Investor Group completed a registered underwritten offering of 7,150,000 shares of the Company’s Common Stock at a price to the public of $19.36 per share (the “2017 Secondary Offering”). Pursuant to the underwriting agreement, at the CD&R Fund VIII Investor Group request, the Company purchased 1.15 million of the 7.15 million shares of the Company’s Common Stock from the underwriters in the 2017 Secondary Offering at a price per share equal to the price at which the underwriters purchased the shares from the CD&R Fund VIII Investor Group. The total amount the Company spent on these repurchases was $22.3 million.

Ply Gem Holdings was acquired by CD&R Fund X and Atrium Intermediate Holdings, LLC, GGC BP Holdings, LLC and AIC Finance Partnership, L.P. (collectively, the “Golden Gate Investor Group”) and merged with Atrium on April 12, 2018 (the “Ply Gem-Atrium Merger”).

Pursuant to the terms of the Merger Agreement, on November 16, 2018, the Company entered into (i) a stockholders agreement (the “New Stockholders Agreement”) between the Company, and each of the CD&R Fund VIII Investor Group, CD&R Pisces Holdings, L.P., a Cayman Islands exempted limited partnership (“CD&R Pisces”, and together with the CD&R Fund VIII Investor Group, the “CD&R Investor Group”) and the Golden Gate Investor Group (together with the CD&R Investor Group, the “Investors”), pursuant to which the Company granted to the Investors certain governance, preemptive and subscription rights and (ii) a registration rights agreement (the “New Registration Rights Agreement”) between the Company and each of the Investors, pursuant to which the Company granted the Investors customary demand and piggyback registration rights, including rights to demand registrations and underwritten shelf registration statement offerings with respect to the shares of the Company’s Common Stock that are held by the Investors following the consummation of the Merger.

Pursuant to the terms of the New Stockholders Agreement, the Company and the CD&R Fund VIII Investor Group terminated the Old Stockholders Agreement. Pursuant to the terms of the New Registration Rights Agreement, the Company and the CD&R Fund VIII Investor Group terminated the Registration Rights Agreement, dated as of October 20, 2009 (the “Old Registration Rights Agreement”), by and among the Company and the CD&R Fund VIII Investor Group.

27

As of September 28, 2019, the CD&R Investor Group owned approximately 49.3% of the outstanding shares of the Company’s Common Stock. At October 28, 2018, the CD&R Fund VIII Investor Group owned approximately 34.4% of the outstanding shares of the Company’s Common Stock.

NOTE 15 — STOCK REPURCHASE PROGRAM

On September 8, 2016, the Company announced that its Board of Directors authorized a stock repurchase program for the repurchase of up to an aggregate of $50.0 million of the Company’s outstanding Common Stock. On October 10, 2017 and March 7, 2018, the Company announced that its Board of Directors authorized new stock repurchase programs for the repurchase of up to an aggregate of $50.0 million and an additional $50.0 million, respectively, of the Company’s outstanding Common Stock for a cumulative total of $100.0 million. Under these repurchase programs, the Company is authorized to repurchase shares, if at all, at times and in amounts that it deems appropriate in accordance with all applicable securities laws and regulations. Shares repurchased pursuant to the repurchase programs are usually retired. There is no time limit on the duration of the programs.

During the nine months ended September 28, 2019, there were no repurchases under the stock repurchase programs. During the nine months ended July 29, 2018, the Company repurchased approximately 2.7 million shares for $46.7 million under the stock repurchase programs, which included 1.15 million shares for $22.3 million purchased pursuant to the CD&R Fund VIII Investor Group’s 2017 Secondary Offering (see Note 14 — CD&R Investor Group). As of September 28, 2019, approximately $55.6 million remained available for stock repurchases under the programs. The timing and method of any repurchases, which will depend on a variety of factors, including market conditions, are subject to results of operations, financial conditions, cash requirements and other factors, and may be suspended or discontinued at any time.

During the nine months ended September 28, 2019 and July 29, 2018, the Company withheld thirty-five thousand and 0.3 million shares, respectively, of stock to satisfy minimum tax withholding obligations arising in connection with the vesting of stock awards, which are included in treasury stock purchases in the consolidated statements of stockholders’ equity.

During the nine months ended September 28, 2019, the Company cancelled 0.1 million shares related to shares withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of stock awards, resulting in a $0.7 million decrease in both treasury stock and additional paid in capital. During the nine months ended July 29, 2018, the Company cancelled 2.9 million shares related to shares withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of stock awards and shares repurchased under the stock repurchase programs, resulting in an approximate $51.8 million decrease in both treasury stock and additional paid in capital.

NOTE 16 — FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, restricted cash, trade accounts receivable, accounts payable and notes payable approximate fair value as of September 28, 2019 and October 28, 2018, respectively, because of their relatively short maturities. The carrying amounts of the indebtedness under the Current ABL Facility and Current Cash Flow Revolver approximate fair value as the interest rates are variable and reflective of market rates. At September 28, 2019, there was $170.0 million of borrowings outstanding under the Current ABL Facility and no outstanding indebtedness under the Current Cash Flow Revolver. The fair values of the remaining financial instruments not currently recognized at fair value on our consolidated balance sheets at the respective period ends were (in thousands): 

	September 28, 2019				October 28, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term Loan Facilities	$	2,536,397	$	2,478,263	$	412,925	$	412,409
8.00% Senior Notes	645,000		632,100		—		—

The fair values of the term loan facility were based on recent trading activities of comparable market instruments, which are level 2 inputs and the fair value of the 8.00% senior notes was based on quoted prices in active markets for the identical liabilities, which are level 1 inputs.

Fair Value Measurements

ASC Subtopic 820-10, Fair Value Measurements and Disclosures, requires us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.

28

Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs.

Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value. There have been no changes in the methodologies used as of September 28, 2019 and October 28, 2018.

Money market: Money market funds have original maturities of three months or less. The original cost of these assets approximates fair value due to their short-term maturity.

Mutual funds: Mutual funds are valued at the closing price reported in the active market in which the mutual fund is traded. 

Assets held for sale: Assets held for sale are valued based on current market conditions, prices of similar assets in similar condition and expected proceeds from the sale of the assets, representative of Level 3 inputs.

Deferred compensation plan liability: Deferred compensation plan liability is comprised of phantom investments in the deferred compensation plan and is valued at the closing price reported in the active markets in which the money market and mutual funds are traded.

Interest rate swap liability: Interest rate swap liabilities are based on cash flow hedge contracts that have fixed rate structures and are measured against market-based LIBOR yield curves. These interest rate swaps were classified within Level 2 of the fair value hierarchy because they were valued using alternative pricing sources or models that utilized market observable inputs, including current and forward interest rates.

Foreign currency hedge: The fair value of the foreign currency forward contract agreement is estimated using industry standard valuation models using market-based observable inputs, including spot rates, forward points, interest rates and volatility inputs (Level 2).

The following tables summarize information regarding our financial assets and liabilities that are measured at fair value on a recurring basis as of September 28, 2019 and October 28, 2018, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

	September 28, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Short-term investments in deferred compensation plan(1):
Money market	$	27	$	—	$	—	$	27
Mutual funds – Growth	991		—		—		991
Mutual funds – Blend	1,625		—		—		1,625
Mutual funds – Foreign blend	528		—		—		528
Mutual funds – Fixed income	—		398		—		398
Total short-term investments in deferred compensation plan(2)	3,171		398		—		3,569
Foreign currency hedge(4)	—		95		—		—
Total assets	$	3,171	$	493	$	—	$	3,664
Liabilities:
Deferred compensation plan liability(2)	$	—	$	3,564	$	—	$	3,564
Interest rate swap liability(3)	—		38,853		—		38,853
Total liabilities	$	—	$	42,417	$	—	$	42,417

29

	October 28, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Short-term investments in deferred compensation plan(1):
Money market	$	369	$	—	$	—	$	369
Mutual funds – Growth	1,118		—		—		1,118
Mutual funds – Blend	2,045		—		—		2,045
Mutual funds – Foreign blend	812		—		—		812
Mutual funds – Fixed income	—		941		—		941
Total short-term investments in deferred compensation plan(2)	4,344		941		—		5,285
Total assets	$	4,344	$	941	$	—	$	5,285
Liabilities:
Deferred compensation plan liability(2)	$	—	$	4,639	$	—	$	4,639
Total liabilities	$	—	$	4,639	$	—	$	4,639

(1)Unrealized holding gains (losses) for the three months ended September 28, 2019 and July 29, 2018 were $(0.1) million and $0.2 million, respectively. Unrealized holding gains for the nine months ended September 28, 2019 and July 29, 2018 were $0.4 million and $0.3 million, respectively. These unrealized holding gains (losses) were substantially offset by changes in the deferred compensation plan liability.

(2)The Company records the short-term investments in deferred compensation plan within investments in debt and equity securities, at market, and the deferred compensation plan liability within accrued compensation and benefits on the consolidated balance sheets.

(3)In May 2019, the Company entered into interest rate swaps to mitigate variability in forecasted interest payments on $1,500.0 million of the Company’s unsecured variable debt. The interest rate swaps effectively convert a portion of the floating rate interest payments into a fixed rate interest payment. There are three interest rate swaps that cover $500.0 million of notional debt each and fix the interest rate at 5.918%, 5.906% and 5.907%, respectively. The Company designated the interest rate swaps as qualifying hedging instruments and accounts for these derivatives as cash flow hedges. The interest rate swap liability is included within other long-term liabilities on the consolidated balance sheets.

(4)In July 2019, the Company entered into a forward contract agreement to hedge approximately $21.9 million of its 2019 non-functional currency inventory purchases. This forward contract was established to protect the Company from variability in cash flows attributable to changes in the U.S. dollar relative to the Canadian dollar. As a cash flow hedge, unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The forward contract is highly correlated to the changes in the U.S. dollar relative to the Canadian dollar. Unrealized gains and losses on these agreements are designated as effective or ineffective. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion of such gains or losses is recorded as a component of cost of goods sold. Future realized gains and losses in connection with each inventory purchase will be reclassified from accumulated other comprehensive income or loss to cost of goods sold. The gains and losses on the derivative contract that are reclassified from accumulated other comprehensive income or loss to current period earnings are included in the line item in which the hedged item is recorded in the same period the forecasted transaction affects earnings. During the three months ended September 28, 2019, the Company realized a gain of approximately $0.1 million within cost of goods sold in the consolidated statement of operations based on these cash flow hedges. The changes in fair values of derivatives that have been designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income or loss and are reclassified into cost of goods sold in the same period the hedged item affects earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair value or cash flows of the underlying exposures being hedged. The changes in the fair value of derivatives that do not qualify as effective are immediately recognized in earnings.

30

NOTE 17 — INCOME TAXES

Under FASB Accounting Standards Codification 740-270, Income Taxes - Interim Reporting, each interim period is considered an integral part of the annual period and tax expense is measured using an estimated annual effective tax rate. Estimates of the annual effective tax rate at the end of interim periods are, of necessity, based on evaluation of possible future events and transactions and may be subject to subsequent refinement or revision. The Company calculates its quarterly tax provision consistent with the guidance provided by ASC 740-270, whereby the Company forecasts its estimated annual effective tax rate then applies that rate to its year-to-date pre-tax book income (loss). In addition, the Company excludes jurisdictions with a projected loss for the year or the year-to-date loss where the Company cannot recognize a tax benefit from its estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections. In addition to the tax resulting from applying the estimated annual effective tax rate to pre-tax income (loss), the Company includes certain items treated as discrete events to arrive at an estimated effective tax rate. Future changes in the forecasted annual income (loss) projections, tax rate changes, or discrete tax items could result in significant adjustments to quarterly income tax expense in future periods in accordance with ASC 740-270.

For the nine months ended September 28, 2019, the Company's estimated annual effective income tax rate was approximately 40.9%, which varied from the statutory rate primarily due to state income tax expense, valuation allowances, foreign income taxes, and the net impact of the Tax Cuts and Jobs Act (“U.S. Tax Reform”). U.S. Tax Reform was enacted by the United States on December 22, 2017. U.S. Tax Reform incorporates significant changes to U.S. corporate income tax laws including, among other things, a reduction in the federal statutory corporate income tax rate from 35% to 21%, an exemption for dividends received from certain foreign subsidiaries, a one-time repatriation tax on deemed repatriated earnings from foreign subsidiaries, immediate expensing of certain depreciable tangible assets, limitations on the deduction for net interest expense and certain executive compensation and the repeal of the Domestic Production Activities Deduction. The effective tax rate including discrete items related to unrecognized tax benefits and adjustments to state income tax rates was 20.4% for the nine months ended September 28, 2019.

Valuation allowance

As of September 28, 2019, the Company remains in a valuation allowance position, in the amount of $21.4 million, against its deferred tax assets for certain state and Canadian jurisdictions for certain entities as it is currently deemed “more likely than not” that the benefit of such net tax assets will not be utilized as the Company continues to be in a three-year cumulative loss position for these states and Canadian jurisdictions. The Company will continue to monitor the positive and negative factors for these jurisdictions and make further changes to the valuation allowances as necessary. As a result of the Merger, net operating losses may be subject to limitation under Section 382.

Unrecognized tax benefits

Despite the Company’s belief that its tax return positions are consistent with applicable tax laws, the Company believes that certain positions could be challenged by taxing authorities. The Company’s tax reserves reflect the difference between the tax benefit claimed on tax returns and the amount recognized in the consolidated financial statements. These reserves have been established based on management’s assessment as to potential exposure attributable to permanent differences and interest and penalties applicable to both permanent and temporary differences. The tax reserves are reviewed periodically and adjusted in light of changing facts and circumstances, such as progress of tax audits, lapse of applicable statutes of limitations and changes in tax law. The Company is currently under examination by various taxing authorities. During the nine months ended September 28, 2019, the tax reserves increased by approximately $6.9 million. The increase is primarily due to uncertain tax positions that were previously netted against deferred tax assets related to net operating losses in accordance with ASC 740 in addition to interest expense related to previously recorded unrecognized tax benefits.

The liability for unrecognized tax benefits as of September 28, 2019 was approximately $11.9 million and is recorded in other long-term liabilities in the accompanying consolidated balance sheet.

Tax receivable agreement (“TRA”) liability

The TRA liability generally provides for the payment by Ply Gem to a third party entity of 85% of the amount of cash savings, if any, in the U.S. federal, state and local income tax that Ply Gem actually realizes as a result of (i) net operating loss carryovers (“NOLs”) from periods ending before January 1, 2013, (ii) deductible expenses attributable to Ply Gem’s 2013 initial public offering and (iii) deductions related to imputed interest. This liability carried over to the Company in connection with the consummation of the Merger on November 16, 2018. Ply Gem’s future taxable income estimate was used to determine the cumulative NOLs that are expected to be utilized and the TRA liability was accordingly adjusted using the 85% TRA rate as Ply Gem retains the benefit of 15% of the tax savings. As of September 28, 2019, the Company had a $24.8 million current liability for the amount due pursuant to the Tax Receivable Agreement and expects to pay this amount by December 31, 2019.

31

NOTE 18 — SEGMENT INFORMATION

Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and is evaluated on a regular basis by the chief operating decision maker to make decisions regarding the allocation of resources to the segment and assess the performance of the segment. For the transition period ended December 31, 2018, the Company began reporting results under three reportable segments: Commercial, Siding and Windows. The Company’s prior reportable segments, Engineered Building Systems, Metal Components, Insulated Metal Panels, and Metal Coil Coating, are now collectively in the Commercial segment. Prior periods for all periods presented have been recast to conform to the current segment presentation. The Siding segment will include the operating results of the legacy Ply Gem operating segment of Siding, Fencing, and Stone, and the Windows segment will include the operating results of the legacy Ply Gem operating segment of Windows and Doors.

These operating segments follow the same accounting policies used for our consolidated financial statements. We evaluate a segment’s performance based primarily upon operating income before corporate expenses.

Corporate assets consist primarily of cash, investments, prepaid expenses, current and deferred taxes and property, plant and equipment associated with our headquarters in Cary, North Carolina and office in Houston, Texas. These items (and income and expenses related to these items) are not allocated to the operating segments. During the nine months ended September 28, 2019, the Company changed the manner in which costs were allocated to the Commercial segment for commercial cost centers that had previously been categorized as unallocated corporate costs. Corporate unallocated expenses include share-based compensation expenses, acquisition costs, and other expenses related to executive, legal, finance, tax, treasury, human resources, information technology and strategic sourcing, and corporate travel expenses. Additional unallocated amounts primarily include non-operating items such as interest income, interest expense, loss on extinguishment of debt and other income (expense).

The following table represents summary financial data attributable to the segments for the periods indicated (in thousands):

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Net sales:
Commercial	$	464,906	$	548,525	$	1,370,152	$	1,426,943
Siding	315,799		—		840,601		—
Windows	504,338		—		1,434,579		—
Total net sales	$	1,285,043	$	548,525	$	3,645,332	$	1,426,943
Operating income:
Commercial	$	59,317	$	79,964	$	142,436	$	157,785
Siding	37,063		—		51,346		—
Windows	34,446		—		62,039		—
Corporate	(35,266)		(25,463)		(106,695)		(71,430)
Total operating income	95,560		54,501		149,126		86,355
Unallocated other expense, net	(56,293)		(4,437)		(170,894)		(37,690)
Income (loss) before taxes	$	39,267	$	50,064	$	(21,768)	$	48,665

	September 28, 2019		October 28, 2018
Total assets:
Commercial	$	1,013,517	$	1,024,433
Siding	2,395,916		—
Windows	2,100,574		—
Corporate	198,449		85,942
Total assets	$	5,708,456	$	1,110,375

32

NOTE 19 — CONTINGENCIES

As a manufacturer of products primarily for use in building construction, the Company is inherently exposed to various types of contingent claims, both asserted and unasserted, in the ordinary course of business. As a result, from time to time, the Company and/or its subsidiaries become involved in various legal proceedings or other contingent matters arising from claims or potential claims. The Company insures against these risks to the extent deemed prudent by its management and to the extent insurance is available. Many of these insurance policies contain deductibles or self-insured retentions in amounts the Company deems prudent and for which the Company is responsible for payment. In determining the amount of self-insurance, it is the Company’s policy to self-insure those losses that are predictable, measurable and recurring in nature. The Company regularly reviews the status of ongoing proceedings and other contingent matters along with legal counsel. Liabilities for such items are recorded when it is probable that the liability has been incurred and when the amount of the liability can be reasonably estimated. Liabilities are adjusted when additional information becomes available. Management believes that the ultimate disposition of these matters will not have a material adverse effect on the Company’s results of operations, financial position or cash flows. However, such matters are subject to many uncertainties and outcomes are not predictable with assurance.

Environmental

The Company is subject to United States and Canadian federal, state, provincial and local laws and regulations relating to pollution and the protection of the environment, including those governing emissions to air, discharges to water, use, storage, treatment, disposal and transport of hazardous waste and other materials, investigation and remediation of contaminated sites, and protection of worker health and safety. From time to time, the Company’s facilities are subject to investigation by governmental authorities. In addition, the Company has been identified as one of many potentially responsible parties for contamination present at certain offsite locations to which it or its predecessors are alleged to have sent hazardous materials for recycling or disposal. The Company may be held liable, or incur fines or penalties, in connection with such requirements or liabilities for, among other things, releases of hazardous substances occurring on or emanating from current or formerly owned or operated properties or any associated offsite disposal location, or for known or newly-discovered contamination at any of the Company’s properties from activities conducted by it or previous occupants. The amount of any liability, fine or penalty may be material, and certain environmental laws impose strict, and under certain circumstances joint and several, liability for the cost of addressing releases of hazardous substances upon certain classes of persons, including site owners or operators and persons that disposed or arranged for the disposal of hazardous substances at contaminated sites.

One of the Company’s subsidiaries entered into an Administrative Order on Consent (the “Consent Order”), effective September 12, 2011, with the United States Environmental Protection Agency (“EPA”), under the Resource Conservation and Recovery Act (“RCRA”), with respect to its Rocky Mount, Virginia property. During 2011, as part of the Consent Order, the Company provided the EPA, among other things, a RCRA Facility Investigation Workplan (the “Workplan”). In 2012, the EPA approved the Workplan, which the Company is currently implementing. Current estimates of remaining costs for predicted assessment, remediation and monitoring activities as of September 28, 2019 are $4.5 million. The Company has recorded approximately $0.3 million of this environmental liability within current liabilities at September 28, 2019 and approximately $4.2 million within other long-term liabilities in the Company’s consolidated balance sheets at September 28, 2019. The Company may incur costs that exceed its recorded environmental liability. The Company will adjust its environmental remediation liability in future periods, if necessary, as further information develops or circumstances change.

The EPA is investigating groundwater contamination at a Superfund site in York, Nebraska referred to as the “PCE/TCE Northeast Contamination Site”. A subsidiary of the Company has been named a potentially responsible party (“PRP”) with respect to the PCE/TCE Northeast Contamination Site. As a PRP, the Company could have liability for investigation and remediation costs associated with the contamination. Given the current status of this matter, the Company has recorded a liability of $5.0 million within other long-term liabilities in its consolidated balance sheets as of September 28, 2019.

The Company is a party to various acquisition and other agreements pursuant to which third parties agreed to indemnify the Company for certain costs relating to environmental liabilities. For example, the Company may be able to recover some of its Rocky Mount, Virginia investigation and remediation costs from U.S. Industries, Inc. and may be able to recover a portion of costs incurred in connection with the York, Nebraska contamination matter from Novelis Corporation as successor to Alcan Aluminum Corporation, the former owner of the York, Nebraska location. The Company’s ability to seek indemnification from parties that have agreed to indemnify it may be limited. There can be no assurance that the Company would receive any funds from these parties, and any related environmental liabilities or costs could have a material adverse effect on our financial condition and results of operations.

Based on current information, the Company is not aware of any environmental compliance obligations, claims or investigations that will have a material adverse effect on its results of operations, cash flows or financial position except as otherwise disclosed in the Company’s consolidated financial statements. However, there can be no guarantee that previously known or newly-discovered matters will not result in material costs or liabilities.

33

Litigation

The Company believes it has valid defenses to the outstanding claims discussed below and will vigorously defend all such claims; however, litigation is subject to many uncertainties and there cannot be any assurance that the Company will ultimately prevail or, in the event of an unfavorable outcome or settlement of litigation, that the ultimate liability would not be material and would not have a material adverse effect on the business, results of operations, cash flows or financial position of the Company.

In November 2018, Aurora Plastics, LLC (“Aurora”) initiated an arbitration demand against Atrium Windows and Doors, Inc., Atrium Extrusion Systems, Inc., and North Star Manufacturing (London) Ltd. (collectively, “Atrium”) pursuant to a Third Amended and Restated Vinyl Compound and Supply Agreement dated as of December 22, 2016. Aurora alleges that Atrium’s breach of the Agreement has resulted in damages in excess of $48.0 million. Arbitration of the matter is currently stayed but may begin in 2019.

On November 14, 2018, an individual stockholder, Gary D. Voigt, filed a putative class action complaint in the Delaware Court of Chancery against CD&R, CD&R Fund VIII, and certain directors of the Company. Voigt purports to assert claims on behalf of himself, on behalf of a class of other similarly situated stockholders of the Company, and derivatively on behalf of the Company, the nominal defendant. An amended complaint was filed on April 11, 2019. The amended complaint asserts claims for breach of fiduciary duty and unjust enrichment against CD&R Fund VIII and CD&R, and for breach of fiduciary duty against the director defendants in connection with the Merger. Voigt seeks damages in an amount to be determined at trial. The Company intends to vigorously defend the litigation.

Other contingencies

The Company is subject to other contingencies, including legal proceedings and claims arising out of its operations and businesses that cover a wide range of matters, including, among others, environmental, contract, employment, intellectual property, securities, personal injury, property damage, product liability, warranty, and modification, adjustment or replacement of component parts or units sold, which may include product recalls. Product liability, environmental and other legal proceedings also include matters with respect to businesses previously owned. The Company has used various substances in products and manufacturing operations, which have been or may be deemed to be hazardous or dangerous, and the extent of its potential liability, if any, under environmental, product liability and workers’ compensation statutes, rules, regulations and case law is unclear.  Further, due to the lack of adequate information and the potential impact of present regulations and any future regulations, there are certain circumstances in which no range of potential exposure may be reasonably estimated. Also, it is not possible to ascertain the ultimate legal and financial liability with respect to certain contingent liabilities, including lawsuits, and therefore no such estimate has been made as of September 28, 2019.

34

CORNERSTONE BUILDING BRANDS, INC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the unaudited consolidated financial statements included herein under “Item 1. Unaudited Consolidated Financial Statements” and the audited consolidated financial statements and the notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended October 28, 2018.

FORWARD LOOKING STATEMENTS

This Quarterly Report includes statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. In some cases, our forward-looking statements can be identified by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “will” or other similar words. We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about future events may and often do vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on any forward-looking information, including any earnings guidance, if applicable. Although we believe that the expectations reflected in the forward-looking statements are reasonable, these expectations and the related statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those projected. These risks, uncertainties and other factors include, but are not limited to:

•industry cyclicality and seasonality and adverse weather conditions;

•challenging economic conditions affecting the nonresidential construction industry;

•downturns in the residential new construction and repair and remodeling end markets, or the economy or the availability of consumer credit;

•volatility in the United States (“U.S.”) economy and abroad, generally, and in the credit markets;

•inability to successfully develop new products or improve existing products;

•the effects of manufacturing or assembly realignments;

•changes in laws or regulations;

•the effects of certain external domestic or international factors that we may not be able to control, including war, civil conflict, terrorism, natural disasters and public health issues;

•our ability to obtain financing on acceptable terms;

•recognition of goodwill or other asset impairment charges;

•commodity price volatility and/or limited availability of raw materials, including steel, PVC resin and aluminum;

•retention and replacement of key personnel;

•increases in union organizing activity and work stoppages at our facilities or the facilities of our suppliers;

•our ability to employ, train and retain qualified personnel at a competitive cost;

•enforcement and obsolescence of our intellectual property rights;

•changes in foreign currency exchange rates;

•costs and liabilities related to compliance with environmental laws and environmental clean-ups;

•changes in building codes and standards;

•potential product liability claims, including class action claims and warranties, relating to products we manufacture;

•competitive activity and pricing pressure in our industry;

35

•the credit risk of our customers;

•the dependence on a core group of significant customers in our Windows and Siding segments;

•operational problems or disruptions at any of our facilities, including natural disasters;

•volatility of the Company’s stock price;

•our ability to make strategic acquisitions accretive to earnings;

•our ability to carry out our restructuring plans and to fully realize the expected cost savings;

•significant changes in factors and assumptions used to measure certain of Ply Gem’s defined benefit plan obligations and the effect of actual investment returns on pension assets;

•volatility in transportation, energy and freight prices;

•the adoption of climate change legislation;

•limitations on our net operating losses, interest deductibility, and payments under the tax receivable agreement;

•breaches of our information system security measures;

•damage to our major information management systems;

•necessary maintenance or replacements to our enterprise resource planning technologies;

•potential personal injury, property damage or product liability claims or other types of litigation;

•compliance with certain laws related to our international business operations;

•the effect of tariffs on steel and other imports;

•the cost and difficulty associated with integrating and combining acquired businesses;

•potential write-downs or write-offs, restructuring and impairment or other charges required in connection with the Merger;

•potential claims arising from the operations of our various businesses arising from periods prior to the dates they were acquired;

•substantial governance and other rights held by the Investors;

•the effect on our common stock price caused by transactions engaged in by the Investors, our directors or executives;

•our substantial indebtedness and our ability to incur substantially more indebtedness;

•limitations that our debt agreements place on our ability to engage in certain business and financial transactions;

•the effect of increased interest rates on our ability to service our debt;

•downgrades of our credit ratings; and

•other risks detailed under the caption “Risk Factors” in this Quarterly Report on Form 10-Q, and in Part I, Item 1A in our Annual Report on Form 10-K for the fiscal year ended October 28, 2018 (the “2018 Form 10-K”), our Transition Report on Form 10-Q for the Transition Period and other filings we make with the SEC.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, we caution you that assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report, including those described under the caption “Risk Factors” in the 2018 Form 10-K, the Transition Report and other risks described in documents subsequently filed by the Company from time to time with the SEC. We expressly disclaim any obligations to release publicly any updates or revisions to these forward-looking statements to reflect any changes in our expectations unless the securities laws require us to do so. 

OVERVIEW

Effective May 23, 2019, NCI Building Systems, Inc. changed its name to Cornerstone Building Brands, Inc. (together with its subsidiaries, unless the context requires otherwise, the “Company,” “Cornerstone,” “NCI,” “we,” “us” or “our”). In connection with the name change, the Company changed its NYSE trading symbol from “NCS” to “CNR”.

36

Cornerstone Building Brands, Inc. is the largest North American integrated manufacturer and marketer of external building products for the commercial, residential, and repair & remodel construction industries. We design, engineer, manufacture and market external building products through our three operating segments, Commercial, Siding, and Windows.

In our Commercial segment, we manufacture and distribute extensive lines of metal products for the nonresidential construction market under multiple brand names through a nationwide network of plants and distribution centers. We offer a number of advantages over traditional construction alternatives, including shorter construction time, more efficient use of materials, lower construction costs, greater ease of expansion and lower maintenance costs. Our Commercial segment also provides metal coil coating services for commercial and construction applications, servicing both internal and external customers. We sell our products for both new construction and repair and retrofit applications.

In our Siding segment, our principal products include vinyl siding and skirting, steel siding, vinyl and aluminum soffit, aluminum trim coil, aluminum gutter coil, aluminum gutters, aluminum and steel roofing accessories, cellular PVC trim and mouldings, J-channels, wide crown molding, window and door trim, F-channels, H-molds, fascia, undersill trims, outside/inside corner posts, rain removal systems, injection molded designer accents such as shakes, shingles, scallops, shutters, vents and mounts, vinyl fence, vinyl railing, and stone veneer in the United States and Canada. The breadth of our product lines and our multiple brand and price point strategy enable us to target multiple distribution channels (wholesale and specialty distributors, retailers and manufactured housing) and end users (new construction and home repair and remodeling).

In our Windows segment, our principal products include vinyl, aluminum-clad vinyl, aluminum, wood and clad-wood windows and patio doors and steel, wood, and fiberglass entry doors that serve both the new construction and the home repair and remodeling sectors in the United States and Canada. We continue introducing new products to the portfolio which allow us to enter or further penetrate new distribution channels and customers. The breadth of our product lines and our multiple price point strategy enable us to target multiple distribution channels (wholesale and specialty distributors, retailers and manufactured housing) and end user markets (new construction and home repair and remodeling).

We assess performance across our operating segments by analyzing and evaluating, among other indicators, gross profit and operating income, as well as whether each segment has achieved its projected sales goals. In assessing our overall financial performance, we regard growth in earnings, as the key indicator of shareholder value. 

Reporting Periods

On November 16, 2018, the Company’s Board of Directors approved a change to the Company's fiscal year end from a 52/53 week year with the Company’s fiscal year end on the Sunday closest to October 31 to a calendar year of the twelve-month period from January 1 to December 31. The Company elected to change its fiscal year end in connection with the Merger to align both Companies’ fiscal year ends. As a result of this change, the Company filed a Transition Report on Form 10-Q that included the financial information for the transition period from October 29, 2018 to December 31, 2018, which period is referred to herein as the "Transition Period". References in this Quarterly Report on Form 10-Q to “fiscal year 2018” or “fiscal 2018” refer to the period from October 30, 2017 through October 28, 2018. The results of operations for the three and nine months ended July 29, 2018 are presented herein as the comparable period to the three and nine months ended September 28, 2019. The Company did not recast the consolidated financial statements for the period from June 30, 2018 to September 28, 2018 or January 1, 2018 to September 28, 2018, because the financial reporting processes in place at that time included certain procedures that were completed only on a quarterly basis. Consequently, to recast this period would have been impractical.

The Company’s current fiscal quarters are based on a four-four-five week calendar with periods ending on the Saturday of the last week in the quarter except for December 31st which will always be the year-end date. Therefore, the financial results of certain fiscal quarters may not be comparable to prior fiscal quarters.

Environmental Stoneworks Acquisition

On January 12, 2019, the Company entered into a Unit Purchase Agreement (the “Purchase Agreement”) with Environmental Materials, LLC, a Delaware limited liability company (“Environmental Stoneworks” or “ESW”), the Members of Environmental Materials, LLC (the “Sellers”) and Charles P. Gallagher and Wayne C. Kocourek, solely in their capacity as the Seller Representative (as defined in the Purchase Agreement), pursuant to which, on February 20, 2019, the Company’s wholly-owned subsidiary, Ply Gem Industries, Inc., purchased from the Sellers 100% of the outstanding limited liability company interests of Environmental Stoneworks (the “Environmental Stoneworks Acquisition”) for total consideration of $182.6 million, subject to post-closing adjustments. The transaction was financed through borrowings under the Company’s asset-based revolving credit facility.

37

Merger with Ply Gem

At the Special Shareholder Meeting on November 15, 2018, NCI’s shareholders approved (i) the Merger Agreement and (ii) the Stock Issuance. NCI’s shareholders also approved the three additional proposals described in the Company’s proxy statement relating to the Special Shareholder Meeting. The Merger was consummated on November 16, 2018 in accordance with the Merger Agreement.

Pursuant to the terms of the Merger Agreement, on November 16, 2018, the Company entered into (i) the New Stockholders Agreement between the Company and each of the Investors, pursuant to which the Company granted to the Investors certain governance, preemptive and subscription rights and (ii) the New Registration Rights Agreement with the Investors, pursuant to which the Company granted the Investors customary demand and piggyback registration rights, including rights to demand registrations and underwritten shelf registration statement offerings with respect to the shares of NCI Common Stock that are held by the Investors following the consummation of the Merger. Pursuant to the terms of the New Stockholders Agreement, the Company and the CD&R Fund VIII Investor Group terminated the Old Stockholders Agreement. Pursuant to the terms of the New Registration Rights Agreement, the Company and the CD&R Fund VIII Investor Group terminated the Old Registration Rights Agreement.

In connection with the Merger, on November 16, 2018, NCI assumed (i) the obligations of Ply Gem Midco, a subsidiary of Ply Gem immediately prior to the consummation of the Merger, as borrower under the Current Cash Flow Credit Agreement, (ii) the obligations of Ply Gem Midco as parent borrower under the Current ABL Credit Agreement and (iii) the obligations of Ply Gem Midco as issuer under the Current Indenture.

On April 12, 2018, Ply Gem Midco entered into a Cash Flow Credit Agreement (the “Current Cash Flow Credit Agreement”), by and among Ply Gem Midco, JP Morgan Chase Bank, N.A., as administrative agent and collateral agent (the “Cash Flow Agent”), and the several banks and other financial institutions from time to time party thereto. As of November 16, 2018, immediately prior to the consummation of the Merger, the Current Cash Flow Credit Agreement provided for (i) a term loan facility (the “Current Term Loan Facility”) in an original aggregate principal amount of $1,755.0 million and (ii) a cash flow-based revolving credit facility (the “Current Cash Flow Revolver” and together with the Current Term Loan Facility, the “Current Cash Flow Facilities”) of up to $115.0 million. On November 16, 2018, Ply Gem Midco entered into a Lender Joinder Agreement, by and among Ply Gem Midco, the additional commitment lender party thereto and the Cash Flow Agent, which amended the Current Cash Flow Credit Agreement in order to, among other things, increase the aggregate principal amount of the Current Term Loan Facility by $805.0 million (the “Incremental Term Loans”). Proceeds of the Incremental Term Loans were used to, among other things, (a) finance the Merger and to pay certain fees, premiums and expenses incurred in connection therewith, (b) repay in full amounts outstanding under the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement (each as defined below) and (c) repay $325.0 million of borrowings outstanding under the Current ABL Facility (as defined below). On November 16, 2018, in connection with the consummation of the Merger, NCI and Ply Gem Midco entered into a joinder agreement with respect to the Current Cash Flow Facilities, and NCI became the Borrower (as defined in the Current Cash Flow Credit Agreement) under the Current Cash Flow Facilities. The Current Term Loan Facility amortizes in nominal quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum, with the remaining balance payable upon final maturity of the Current Term Loan Facility on April 12, 2025. There are no amortization payments under the Current Cash Flow Revolver, and all borrowings under the Current Cash Flow Revolver mature on April 12, 2023. At November 16, 2018, following consummation of the Merger, there was $2,555.6 million outstanding under the Current Term Loan Facility and there were no amounts drawn on the Current Cash Flow Revolver.

38

On April 12, 2018, Ply Gem Midco and certain subsidiaries of Ply Gem Midco entered into an ABL Credit Agreement (the “Current ABL Credit Agreement”), by and among Ply Gem Midco, the subsidiary borrowers from time to time party thereto, UBS AG, Stamford Branch, as administrative agent and collateral agent (the “ABL Agent”), and the several banks and other financial institutions from time to time party thereto, which provided for an asset-based revolving credit facility (the “Current ABL Facility”) of up to $360.0 million, consisting of (i) $285.0 million available to U.S. borrowers (subject to U.S. borrowing base availability) (the “ABL U.S. Facility”) and (ii) $75.0 million available to both U.S. borrowers and Canadian borrowers (subject to U.S. borrowing base and Canadian borrowing base availability) (the “ABL Canadian Facility”). On October 15, 2018, Ply Gem Midco entered into Amendment No. 2 to the Current ABL Credit Agreement, by and among Ply Gem Midco, the incremental lender party thereto and the ABL Agent, which amended the Current ABL Credit Agreement in order to, among other things, increase the aggregate commitments under the Current ABL Facility by $36.0 million to $396.0 million overall, and with the (x) ABL U.S. Facility being increased from $285.0 million to $313.5 million and (y) the ABL Canadian Facility being increased from $75.0 million to $82.5 million. On November 16, 2018, Ply Gem Midco entered into Amendment No. 4 to the Current ABL Credit Agreement, by and among Ply Gem Midco, the incremental lenders party thereto and the ABL Agent, which amended the Current ABL Credit Agreement in order to, among other things, increase the aggregate commitments under the Current ABL Facility by $215.0 million (the “Incremental ABL Commitments”) to $611.0 million overall, and with the (x) ABL U.S. Facility being increased from $313.5 million to approximately $483.7 million and (y) the ABL Canadian Facility being increased from $82.5 million to approximately $127.3 million. On November 16, 2018, in connection with the consummation of the Merger, NCI and Ply Gem Midco entered into a joinder agreement with respect to the Current ABL Facility, and NCI became the Parent Borrower (as defined in the Current ABL Credit Agreement) under the Current ABL Facility. The Company and, at the Company’s option, certain of the Company’s subsidiaries are the borrowers under the Current ABL Facility. As of November 16, 2018, and following consummation of the Merger, (a) Ply Gem Industries, Inc., Atrium Windows and Doors, Inc., NCI Group, Inc. and Robertson-Ceco II Corporation were U.S. subsidiary borrowers under the Current ABL Facility, and (b) Gienow Canada Inc., Mitten Inc., North Star Manufacturing (London) Ltd. and Robertson Building Systems Limited were Canadian borrowers under the Current ABL Facility. All borrowings under the Current ABL Facility mature on April 12, 2023. At November 16, 2018, following consummation of the Merger, there were no amounts drawn and $24.7 million of letters of credit issued under the Current ABL Facility.

On April 12, 2018, Ply Gem Midco issued $645.0 million aggregate principal amount of 8.00% Senior Notes due 2026 (the “8.00% Senior Notes”). The 8.00% Senior Notes were issued pursuant to an Indenture, dated as of April 12, 2018 (as supplemented from time to time, the “Current Indenture”), by and among Ply Gem Midco, as issuer, the subsidiary guarantors from time to time party thereto and Wilmington Trust, National Association, as trustee. On November 16, 2018, in connection with the consummation of the Merger, the Company entered into a supplemental indenture and assumed the obligations of Ply Gem Midco as issuer under the Current Indenture and the 8.00% Senior Notes. The 8.00% Senior Notes bear interest at 8.00% per annum and will mature on April 15, 2026. Interest is payable semi-annually in arrears on April 15 and October 15.

On November 16, 2018, in connection with the incurrence by Ply Gem Midco of the Incremental Term Loans and the obtaining by Ply Gem Midco of the Incremental ABL Commitments, following consummation of the Merger, the Company (a) terminated all outstanding commitments and repaid all outstanding amounts under the Term Loan Credit Agreement, dated as of February 8, 2018 (the “Pre-merger Term Loan Credit Agreement”), by and among the Company, as borrower, the several banks and other financial institutions from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and (b) terminated all outstanding commitments and repaid all outstanding amounts under the ABL Credit Agreement, dated as of February 8, 2018 (the “Pre-merger ABL Credit Agreement”), by and among NCI Group, Inc. and Robertson-Ceco II Corporation, as borrowers, the Company, as a guarantor, the other borrowers from time to time party thereto, the several banks and other financial institutions from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent and collateral agent. Outstanding letters of credit under the Pre-merger ABL Credit Agreement were cash collateralized.

In connection with the termination and repayment of the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement, the Company also terminated (i) the Term Loan Guarantee and Collateral Agreement, dated as of February 8, 2018, made by the Company and certain of its subsidiaries, in favor of Credit Suisse AG, Cayman Islands Branch, as collateral agent, (ii) the ABL Guarantee and Collateral Agreement, dated as of February 8, 2018, made by the Company and certain of its subsidiaries, in favor of Wells Fargo Bank, National Association, as collateral agent, and (iii) the Intercreditor Agreement, dated as of February 8, 2018, between Credit Suisse AG, Cayman Islands Branch and Wells Fargo Bank, National Association, and acknowledged by the Company and certain of its subsidiaries.

The Company incurred approximately $36.3 million of acquisition expenses during the nine months ended September 28, 2019 related to the Merger, primarily for integration expenses, various third-party consulting and due-diligence services, and financial advisors’ fees, which are recorded in strategic development and acquisition related costs in the Company’s consolidated statements of operations.

39

Change in Operating Segments

For the Transition Period, the Company began reporting results under three reportable segments: (i) Commercial, (ii) Siding, and (iii) Windows, to align with how the Company manages its business, reviews operating performance and allocates resources following the Merger. The Commercial segment will include the aggregate operating results of the Company’s legacy businesses, and the Siding and Windows segments will include the operating results of the legacy Ply Gem operating segments. Prior periods have been recast to conform to the current segment presentation.

Three Months Ended September 28, 2019

Consolidated sales increased by approximately 134.3% for the three months ended September 28, 2019 as compared to the three months ended July 29, 2018. The improvement was primarily driven by the $820.1 million incremental aggregate sales of Ply Gem and ESW for the three months ended September 28, 2019. The impact of the added business is partially offset by lower sales in the Commercial segment, which decreased $83.6 million.

The Company’s gross profit percentage for the three months ended September 28, 2019 was 24.1% as compared to 24.3% in the third quarter of fiscal 2018. The lower gross margin was primarily caused by the inclusion of certain Ply Gem product lines, specifically Windows, that carry a lower gross margin than certain legacy Commercial products combined with integration synergies and cost reduction initiatives implemented in connection with the merger between Ply Gem and NCI. Since our building products are intended for exterior use, our sales and operating earnings tend to be lower during periods of inclement weather. As a result, weather conditions in the first and fourth quarters of each calendar year will result in these quarters producing significantly less sales revenue and profitability than our second and third quarters of the year.

Industry Conditions

Commercial

Our sales and earnings are subject to both seasonal and cyclical trends and are influenced by general economic conditions, interest rates, the price of steel relative to other building materials, the level of nonresidential construction activity, roof repair and retrofit demand and the availability and cost of financing for construction projects. Our sales normally are lower in the first and fourth quarters of each fiscal year compared to the second and third quarters because of unfavorable weather conditions for construction and typical business planning cycles affecting construction.

According to Dodge Data & Analytics (“Dodge”), low-rise nonresidential construction starts, as measured in square feet and comprising buildings of up to five stories, were down approximately 6% during the first nine months of 2019 as compared to the same period in 2018. According to the Dodge fourth quarter 2019 forecast, as measured in square feet, non-residential buildings starts are expected to dip 3% in 2019 and 8% in 2020. However, Dodge typically revises initial reported figures.

The leading indicators that we follow and that typically have the most meaningful correlation to nonresidential low-rise construction starts are the American Institute of Architects’ (“AIA”) Architecture Mixed Use Index, Dodge Residential single family starts and the Conference Board Leading Economic Index (“LEI”). Historically, there has been a very high correlation to the Dodge low-rise nonresidential starts when the three leading indicators are combined and then seasonally adjusted.

Residential (Siding and Windows)

Our residential building products are typically installed on a new construction home 90 to 120 days after the start of the home, therefore, there is a lag between the timing of the single-family housing start date and the time in which our products are installed on a home. From an industry perspective, we evaluate the new construction environment by reviewing the U.S. Census Bureau single family housing start statistics to assess the performance of the new construction market for a normal quarterly period. For the three months ended September 28, 2019, we evaluated U.S. Census Bureau single family housing starts in the period from March 2019 to June 2019 to assess the demand impacts for our products for the three months ended September 28, 2019 noting that single family housing starts decreased 7.1% due to a general softening in overall economic conditions specifically for new construction. For new construction, we also examine where these single-family housing starts occur geographically as the Northeast, which decreased 8.1%, and Midwest, which decreased 17.5%, are significant vinyl siding concentrated areas relative to the South and the West. In addition to new construction, we also evaluate the repair and remodeling market to assess residential market conditions by evaluating the Leading Indicator of Remodeling Activity (“LIRA”). For the third quarter of 2019, LIRA reflected that the trailing 12 months of remodeling activity decreased from 6.8% for the third quarter of 2018 to 5.9% indicating a decline in the repair and remodeling market due to recent economic conditions. Finally, we assess our performance relative to our competitors and the overall siding industry by evaluating the marketing indicators produced by the Vinyl Siding Institute ("VSI"), a third party which summarizes vinyl siding unit sales for the industry. For the three months ended September 28, 2019, the VSI reported that siding units increased 4.1% for the industry. Overall, our Siding segment, excluding stone, is heavily weighted to the repair and remodeling market with approximately 65% of our net sales being attributed to repair and remodeling with the remaining 35% attributed to the new construction market.

40

For the nine months ended September 28, 2019, we evaluated U.S. Census Bureau single family housing starts in the period from September 2018 to June 2019 to assess the demand impacts for our products for the nine months ended September 28, 2019 noting that single family housing starts decreased 5.0% during this period due to inclement wet weather that existed during late Spring and a general softening in overall economic conditions. For new construction, we also examine where these single-family housing starts occur geographically as the Northeast; which decreased 3.1%, and Midwest, which decreased 12.5%, are significant vinyl siding concentrated areas relative to the South and the West. In addition to new construction, we also evaluate the repair and remodeling market to assess residential market conditions by evaluating the LIRA. For the third quarter of 2019, LIRA reflected that the trailing 12 months of remodeling activity decreased from 6.8% for the third quarter of 2018 to 5.9% indicating a decline in the repair and remodeling market. Finally, we assess our performance relative to our competitors and the overall siding industry by evaluating the marketing indicators produced by the VSI, a third party which summarizes vinyl siding unit sales for the industry. For the nine months ended September 28, 2019, the VSI reported that siding units increased 1.6% for the industry. As of September 28, 2019, our U.S. market position in vinyl siding was 37.1% while our share of the Canadian vinyl siding market was 33.4%.

Historically, we evaluate our net sales performance within the Windows segment by evaluating our net sales for the new construction market and the repair and remodeling market. Overall, our Windows segment is weighted to the new construction market with approximately 50% of our net sales attributed to new construction with the remaining 50% attributed to the repair and remodeling market.

41

RESULTS OF OPERATIONS

Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker to make decisions about how to allocate resources to the segment and assess the performance of the segment. We have three operating segments: (i) Commercial, (ii) Siding, and (iii) Windows. Our operating segments operate in the commercial and residential new construction, and repair & remodel construction markets. Sales and earnings are influenced by general economic conditions, the level of residential and nonresidential construction activity, commodity costs, such as steel, aluminum, and PVC, other input costs such as labor and freight, and the availability and terms of financing available for construction. The operating segments follow the same accounting policies used for our consolidated financial statements.

Corporate assets consist primarily of cash, investments, prepaid expenses, current and deferred taxes and property, plant and equipment associated with our headquarters in Cary, North Carolina and office in Houston, Texas. These items (and income and expenses related to these items) are not allocated to the operating segments. Corporate unallocated expenses include share-based compensation expenses, acquisition costs and other expenses related to executive, legal, finance, tax, treasury, human resources, information technology and strategic sourcing, and corporate travel expenses. Additional unallocated amounts primarily include non-operating items such as interest income, interest expense, loss on extinguishment of debt and other income (expense). See Note 18 — Segment Information in the notes to the unaudited consolidated financial statements for more information on our segments.

We have revised our segment reporting to represent how we now manage our business, recasting prior periods to conform to the current segment presentation. The following table represents sales and operating income (loss) attributable to these operating segments for the periods indicated (in thousands):

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Net sales:
Commercial	$	464,906	$	548,525	$	1,370,152	$	1,426,943
Siding	315,799		—		840,601		—
Windows	504,338		—		1,434,579		—
Total net sales	$	1,285,043	$	548,525	$	3,645,332	$	1,426,943
Operating income:
Commercial	$	59,317	$	79,964	$	142,436	$	157,785
Siding	37,063		—		51,346		—
Windows	34,446		—		62,039		—
Corporate	(35,266)		(25,463)		(106,695)		(71,430)
Total operating income	$	95,560	$	54,501	$	149,126	$	86,355
Unallocated other expense, net	(56,293)		(4,437)		(170,894)		(37,690)
Income (loss) before taxes	$	39,267	$	50,064	$	(21,768)	$	48,665

Following the Merger completed on November 16, 2018, the Company determined that it would have three reportable segments: (i) Commercial, (ii) Siding and (iii) Windows. These reportable segments were derived out of the legacy segments of the Company and Ply Gem Holdings. The legacy segments of the Company: Engineered Building Systems, Metal Components, Insulated Metal Panels, and Metal Coil Coating, are contained within the Commercial segment under the post-Merger segment structure. The legacy segments of Ply Gem Holdings: Siding, Fencing, and Stone, are within the Siding segment under the post-Merger segment structure while Windows and Doors are within the Windows segment.

For the three and nine months ended September 28, 2019, the Commercial segment contains operating segment results for the period with a comparison to the three and nine months ended July 29, 2018. During the three months ended June 29, 2019, the Company prospectively changed the manner in which costs were allocated to the Commercial segment for commercial cost centers that had previously been categorized as unallocated corporate costs. The Siding and Windows segments contain operating segment results for the three and nine months ended September 28, 2019 with no comparative information included as these operating segments did not exist within Cornerstone for the three and nine months ended July 29, 2018.

42

THREE MONTHS ENDED SEPTEMBER 28, 2019 COMPARED TO THREE MONTHS ENDED JULY 29, 2018

Commercial

	Three Months Ended
(Amounts in thousands)	September 28, 2019				July 29, 2018
Statement of operations data:
Net sales	$	464,906	100.0	%	$	548,525	100.0	%
Gross profit	120,876		26.0	%	133,401		24.3	%
SG&A expense (including acquisition costs)	58,735		12.6	%	56,779		10.4	%
Amortization of intangible assets	2,824		0.6	%	2,412		0.4	%
Gain on disposition of business	—		—	%	(1,013)		(0.2)	%
Gain on insurance recovery	—		—	%	(4,741)		(0.9)	%
Operating income	59,317		12.8	%	79,964		14.6	%

Net sales decreased $83.6 million, or 15.2% for the three months ended September 28, 2019 compared to the three months ended July 29, 2018. The decrease is driven by lower tonnage volumes within all or our businesses, excluding insulated metal panels. The volume decrease is primarily attributed to an acceleration of shipments in the prior year as customers were motivated to take receipt of materials in advance of anticipated material and price increases. Further, prolonged wet weather and labor shortages have challenged the execution schedule for many of our customers, creating volume headwinds during the three months ended September 28, 2019.

Gross profit decreased $12.5 million or 9.4% for the three months ended September 28, 2019 compared to the three months ended July 29, 2018. The decrease in gross profit is attributed to lower tonnage volumes discussed above. As a percentage of net sales, gross profit increased 170 basis points due to commercial price discipline and various supply chain and procurement cost-out initiatives, partially offset by lower leverage of fixed cost structure as a result of decreasing tonnage volume.

Selling, general, and administrative expenses (“SG&A”) increased $2.0 million or 3.4% for the three months ended September 28, 2019 compared to the three months ended July 29, 2018 primarily due to general and administrative costs of $4.3 million that are allocated to the Commercial segment that were previously categorized as unallocated corporate costs prior to the Merger. Adjusting for the incremental general and administrative costs, as a percent of net sales, SG&A increased by 130 basis points due to investments in talent and technology within our insulated metal panel and pre-engineered buildings businesses, which more than offset the impact of cost initiatives that have been implemented.

Amortization expense for the three months ended September 28, 2019 was $2.8 million or 0.6% of net sales compared to $2.4 million or 0.4% of net sales for the three months ended July 29, 2018. The amortization expense as a percentage of net sales is higher due to the amortization of trade names which were previously classified as indefinite lived.

Gain on disposition of business for the three months ended July 29, 2018 was $1.0 million related to the disposal of a non-strategic product line. There was no corresponding gain in the three months ended September 28, 2019.

Gain on insurance recovery for the three months ended July 29, 2018 was $4.7 million related to proceeds from a final settlement with our insurers for property damage at one of our facilities. There was no corresponding gain in the three months ended September 28, 2019.

Siding

	Three Months Ended
(Amounts in thousands)	September 28, 2019				July 29, 2018
Statement of operations data:
Net sales	$	315,799	100.0	%	$	—	—	%
Gross profit	90,608		28.7	%	—		—	%
SG&A expense (including acquisition costs)	28,309		9.0	%	—		—	%
Amortization of intangible assets	25,236		8.0	%	—		—	%
Operating income	37,063		11.7	%	—		—	%

Net sales for the three months ended September 28, 2019 were $315.8 million. Net sales for the three months ended September 28, 2019 were favorably impacted by the inclusion of $45.4 million for the Environmental Stoneworks (“ESW”) acquisition, which closed on February 20, 2019. Excluding ESW, our net sales were $270.4 million for the three months ended September 28, 2019. Our net sales for the U.S. and Canadian markets were approximately $291.9 million and $23.9 million, respectively, for the three months ended September 28, 2019. For the three months ended September 28, 2019, foreign currency negatively impacted our net sales by $0.4 million.

43

Gross profit for the three months ended September 28, 2019 was $90.6 million. Gross profit for the three months ended September 28, 2019 included ESW gross profit of $11.6 million. Excluding ESW, our gross profit would have been $79.0 million for the three months ended September 28, 2019. Historically, our gross profit is impacted by raw material costs, specifically PVC resin and aluminum. We pass along increases in raw material input costs to our customers but normally there is a lag period of approximately 90-120 days between the impact of higher raw material costs and customer pricing actions. In addition to raw material costs, we closely monitor labor and freight costs. Labor costs have trended higher recently given the shortage of manufacturing labor personnel and wage inflation pressure.

As a percentage of net sales, our gross profit percentage was 29.2% excluding ESW as our Siding net sales and profitability are normally higher during the second and third quarters due to weather seasonality which increases building activity in both the new construction and repair and remodeling markets during the late spring and summer months. Higher volumes experienced during the summer months combined with price over inflation contributed to the 29.2% gross profit percentage.

Selling, general, and administrative expenses were $28.3 million for the three months ended September 28, 2019 including $9.3 million of SG&A expenses attributed to ESW. Included within SG&A expenses are sales and marketing expenses, research and development costs, and legal and professional fees and non-manufacturing personnel costs. As a percentage of net sales, SG&A expenses were 7.0% for the three months ended September 28, 2019 excluding ESW.

Amortization expense for the three months ended September 28, 2019 was $25.2 million or 8.0% of net sales. The amortization expense is directly attributed to the Merger and the ESW acquisition and the resulting fair values assigned to our intangible assets including trade names and customer lists which both have finite amortization periods.

Windows

	Three Months Ended
(Amounts in thousands)	September 28, 2019				July 29, 2018
Statement of operations data:
Net sales	$	504,338	100.0	%	—	—	%
Gross profit	98,319		19.5	%	—	—	%
SG&A expense (including acquisition costs)	47,208		9.4	%	—	—	%
Amortization of intangible assets	16,665		3.3	%	—	—	%
Operating income	34,446		6.8	%	—	—	%

Net sales for the three months ended September 28, 2019 were $504.3 million. Net sales for the three months ended September 28, 2019 included net sales of $108.8 million for Silver Line which was acquired on October 14, 2018. Excluding Silver Line, our net sales would have been $395.6 million for the three months ended September 28, 2019. For the three months ended September 28, 2019, foreign currency negatively impacted our net sales by $0.8 million.

Gross profit for the three months ended September 28, 2019 was $98.3 million. Gross profit for the three months ended September 28, 2019 includes Silver Line gross profit of $13.4 million. Excluding the impact of the Silver Line gross profit, our gross profit would have been $84.9 million for the three months ended September 28, 2019. Historically, our gross profit is impacted by raw material costs, specifically PVC resin, aluminum, and glass. We pass along increases in raw material input costs to our customers but normally there is a lag period of approximately 90-120 days between the impact of higher raw material costs and customer pricing actions. In addition to raw material costs, we closely monitor labor and freight costs. Labor costs have trended higher recently given the shortage of manufacturing labor personnel and wage inflation pressure. Finally, we review foreign currency fluctuations specifically for the Canadian dollar that can impact gross profit. For the three months ended September 28, 2019, foreign currency negatively impacted our gross profit by $0.3 million.

As a percentage of net sales, our gross profit percentage was 21.5% excluding Silver Line gross profit. Our net sales and profitability are normally higher during the second and third quarters due to weather seasonality which increases building activity in both the new construction and repair and remodeling markets. With increased production volumes during the late spring and summer months, our gross profit trends higher during the second and third quarters. These higher volumes combined with price discipline, synergy and cost improvement initiatives contributed to the 21.5% gross profit percentage.

Selling, general, and administrative expenses were $47.2 million for the three months ended September 28, 2019. SG&A expenses for the three months ended September 28, 2019 includes $4.4 million of Silver Line SG&A expenses. Excluding the impact of Silver Line, SG&A expenses would have been $42.8 million. Included within SG&A expenses are sales and marketing expenses, research and development costs, and legal and professional fees and non-manufacturing personnel costs. As a percentage of net sales, SG&A expenses were 10.8% for the three months ended September 28, 2019 excluding Silver Line.

44

Amortization expense for the three months ended September 28, 2019 was $16.7 million or 4.2% of net sales excluding Silver Line. The amortization expense is directly attributed to the Merger and the fair values assigned to our intangible assets including trade names and customer lists which both have finite amortization periods.

Unallocated Operating Earnings (Losses), Interest, and Provision (Benefit) for Income Taxes

	Three Months Ended
(Amounts in thousands)	September 28, 2019		July 29, 2018
Statement of operations data:
SG&A expense	$	(29,996)	$	(21,821)
Acquisition related expenses	(5,270)		(3,642)
Operating loss	(35,266)		(25,463)
Interest expense	(56,549)		(4,572)
Interest income	155		48
Currency transaction loss	(616)		(258)
Other income, net	717		345
Income tax provision	14,103		14,078

Unallocated operating losses include items that are not directly attributed to or allocated to our reporting segments. Such items include legal costs, corporate payroll, and unallocated finance and accounting expenses. The unallocated operating loss for the three months ended September 28, 2019 increased by $9.8 million or 38.5% compared to the three months ended July 29, 2018 due primarily to the addition of the Ply Gem corporate cost center, increased stock-based compensation and $5.3 million of costs associated with the Merger and integration of the legacy companies.

Interest expense increased to $56.5 million for the three months ended September 28, 2019 compared to $4.6 million for the three months ended July 29, 2018. The interest expense increase is primarily due to debt obligations assumed in the Merger. Following the consummation of the Merger, our consolidated debt balance increased to $3.3 billion at September 28, 2019 as compared to $407.2 million at October 28, 2018.

Foreign exchange gain (loss) for the three months ended September 28, 2019 was a $0.6 million loss, compared to a loss of $0.3 million for the three months ended July 29, 2018, due to exchange rate fluctuations in the Canadian dollar and Mexican peso relative to the U.S. dollar.

Consolidated provision (benefit) for income taxes was an expense of $14.1 million for the three months ended September 28, 2019 compared to an expense of $14.1 million for the three months ended July 29, 2018. The effective tax rate for the three months ended September 28, 2019 was 35.9% compared to 28.1% for the three months ended July 29, 2018. The change in the effective tax rate was primarily driven by the continuing effects associated with the enactment of the U.S. Tax Cuts and Jobs Act, limitations on the deduction for net interest expense, and the inclusion of Ply Gem operations in the current period.

NINE MONTHS ENDED SEPTEMBER 28, 2019 COMPARED TO NINE MONTHS ENDED JULY 29, 2018

Commercial

	Nine Months Ended
(Amounts in thousands)	September 28, 2019				July 29, 2018
Statement of operations data:
Net sales	$	1,370,152	100.0	%	$	1,426,943	100.0	%
Gross profit	332,711		24.3	%	329,401		23.1	%
SG&A expense (including acquisition costs)	181,796		13.3	%	163,447		11.5	%
Amortization of intangible assets	8,479		0.6	%	7,237		0.5	%
Loss on disposition of business	—		—	%	5,673		0.4	%
Gain on insurance recovery	—		—	%	(4,741)		(0.3)	%
Operating income	142,436		10.4	%	157,785		11.1	%

45

Net sales decreased $56.8 million, or 4.0% for the nine months ended September 28, 2019 compared to the nine months ended July 29, 2018. The decrease in net sales is primarily attributed to lower tonnage volumes as the prior year benefited from an acceleration of shipments as customers were motivated to take receipt of materials in advance of material and price increases. This has been partially offset by the pass through of higher material input costs in the first half of 2019. Further, prolonged wet weather and labor shortages have challenged the execution schedule for many of our customers, creating volume headwinds during the nine months ending September 28, 2019.

Gross profit increased $3.3 million or 1.0% for the nine months ended September 28, 2019 compared to the nine months ended July 29, 2018. As a percentage of net sales, gross profit increased 120 basis points driven by commercial price discipline and cost savings from various procurement and supply chain initiatives, partially offset by lower leverage of fixed cost structure as a result of decreasing tonnage volume.

Selling, general, and administrative expenses (“SG&A”) increased $18.3 million or 11.2% for the nine months ended September 28, 2019, compared to the nine months ended July 29, 2018 primarily due to general and administrative costs of $18.0 million that are allocated to the Commercial segment that were previously categorized as unallocated corporate costs prior to the Merger. Adjusting for these incremental general and administrative costs, as a percent of net sales, SG&A increased 50 basis points primarily due to investments in talent and technology in our insulated metal panel and pre-engineered metal buildings businesses, which offset the impact of cost initiatives that have been implemented.

Amortization expense for the nine months ended September 28, 2019 was $8.5 million or 0.6% of net sales compared to $7.2 million or 0.5% of net sales for the nine months ended July 29, 2018. The amortization expense as a percentage of net sales is higher due to the amortization of trade names which were previously classified as indefinite lived.

Loss on disposition of business for the nine months ended July 29, 2018 was $5.7 million. During the second quarter of fiscal 2018 we recorded a loss of $6.7 million on the sale of our China manufacturing facility and during the third quarter of fiscal 2018 we recorded a $1.0 million gain related to the disposal of a non-strategic product line. There was no corresponding loss in the nine months ended September 28, 2019.

Gain on insurance recovery for the nine months ended July 29, 2018 was $4.7 million related to proceeds from a final settlement with our insurers for property damage at one of our facilities. There was no corresponding gain in the nine months ended September 28, 2019.

Siding

	Nine Months Ended
(Amounts in thousands)	September 28, 2019				July 29, 2018
Statement of operations data:
Net sales	$	840,601	100.0	%	$	—	—	%
Gross profit	208,826		24.8	%	—		—	%
SG&A expense (including acquisition costs)	83,573		9.9	%	—		—	%
Amortization of intangible assets	73,907		8.8	%	—		—	%
Operating income	51,346		6.1	%	—		—	%

Net sales for the nine months ended September 28, 2019 were $840.6 million. Net sales for the nine months ended September 28, 2019 were favorably impacted by the inclusion of $108.2 million for the ESW acquisition, which closed on February 20, 2019. Excluding ESW, our net sales were $732.4 million for the nine months ended September 28, 2019. Our net sales for the U.S. and Canadian markets were approximately $784.5 million and $56.1 million, respectively, for the nine months ended September 28, 2019. For the nine months ended September 28, 2019, foreign currency negatively impacted our net sales by $2.4 million.

Gross profit for the nine months ended September 28, 2019 was $208.8 million. Gross profit was negatively impacted $14.4 million by the non-cash inventory fair value step-up associated with the Merger and by $1.9 million for the non-cash inventory fair value step-up associated with the ESW acquisition that closed on February 20, 2019 both of which increased costs of goods sold during the nine months ended September 28, 2019. Gross profit for the nine months ended September 28, 2019 includes ESW gross profit of $25.6 million. Excluding ESW and the impact of these inventory step-ups, our gross profit would have been $199.5 million for the nine months ended September 28, 2019. We pass along increases in raw material input costs to our customers but normally there is a lag period of approximately 90-120 days between the impact of higher raw material costs and customer pricing actions. In addition to raw material costs, we closely monitor labor and freight costs. Labor costs have trended higher recently given the shortage of manufacturing labor personnel and wage inflation pressure. For the nine months ended September 28, 2019, foreign currency negatively impacted our gross profit by $0.7 million.

46

As a percentage of net sales, our gross profit percentage was 27.2% excluding ESW and the fair value step-up. Our net sales and profitability are normally higher during the second and third quarters due to weather seasonality which increases building activity in both the new construction and repair and remodeling markets. With increased production volumes during the late spring and summer months, our gross profit trends higher during the second and third quarters. These higher volumes combined with price discipline contributed to the 27.2% gross profit percentage.

Selling, general, and administrative expenses were $83.6 million for the nine months ended September 28, 2019 including $19.6 million of SG&A expenses attributed to ESW. Included within SG&A expenses are sales and marketing expenses, research and development costs, and legal and professional fees and non-manufacturing personnel costs. As a percentage of net sales, SG&A expenses were 8.7% for the nine months ended September 28, 2019 excluding ESW.

Amortization expense for the nine months ended September 28, 2019 was $73.9 million or 8.8% of net sales. The amortization expense is directly attributed to the Merger and the ESW acquisition and the resulting fair values assigned to our intangible assets including trade names and customer lists which both have finite amortization periods.

Windows

	Nine Months Ended
(Amounts in thousands)	September 28, 2019				July 29, 2018
Statement of operations data:
Net sales	$	1,434,579	100.0	%	$	—	—	%
Gross profit	258,846		18.0	%	—		—	%
SG&A expense (including acquisition costs)	146,494		10.2	%	—		—	%
Amortization of intangible assets	50,313		3.5	%	—		—	%
Operating income	62,039		4.3	%	—		—	%

Net sales for the nine months ended September 28, 2019 were $1,434.6 million. Net sales for the nine months ended September 28, 2019 included net sales of $311.4 million and $81.9 million for Silver Line and Atrium, respectively. The Silver Line acquisition was completed on October 14, 2018 while the Atrium acquisition was completed on April 12, 2018 with both entities’ net sales included for the Company within the Windows segment for the nine months ended September 28, 2019. Excluding these 2018 acquisitions, our net sales would have been $1,041.2 million for the nine months ended September 28, 2019. For the nine months ended September 28, 2019, foreign currency negatively impacted our net sales by $4.1 million.

Gross profit for the nine months ended September 28, 2019 was $258.8 million. Gross profit for the nine months ended September 28, 2019 includes Silver Line gross profit of $32.7 million and Atrium gross profit of $18.6 million. The Silver Line acquisition was completed on October 14, 2018 while the Atrium acquisition was completed on April 12, 2018 with both entities’ gross profit included for the Company within the Windows segment for the nine months ended September 28, 2019. Excluding the impact of the Silver Line and Atrium gross profit, our gross profit would have been $207.6 million for the nine months ended September 28, 2019. We pass along increases in raw material input costs to our customers but normally there is a lag period of approximately 90-120 days between the impact of higher raw material costs and customer pricing actions. In addition to raw material costs, we closely monitor labor and freight costs. Labor costs have trended higher recently given the shortage of manufacturing labor personnel and wage inflation pressure. For the nine months ended September 28, 2019, foreign currency negatively impacted our gross profit by $1.2 million.

As a percentage of net sales, our gross profit percentage was 19.9% excluding Silver Line and Atrium gross profit. Our net sales and profitability are normally higher during the second and third quarters due to weather seasonality which increases building activity in both the new construction and repair and remodeling markets. With increased production volumes during the late spring and summer months, our gross profit trends higher during the second and third quarters. These higher volumes combined with price discipline contributed to the 19.9% gross profit percentage.

Selling, general, and administrative expenses were $146.5 million for the nine months ended September 28, 2019. SG&A expenses for the nine months ended September 28, 2019 includes $14.8 million and $10.3 million of Silver Line and Atrium SG&A expenses, respectively. Excluding the impact of Silver Line and Atrium, SG&A expenses would have been $121.4 million. Included within SG&A expenses are sales and marketing expenses, research and development costs, and legal and professional fees and non-manufacturing personnel costs. As a percentage of net sales, SG&A expenses were 11.7% for the nine months ended September 28, 2019 excluding Silver Line and Atrium as we normally gain leverage on the fixed component of SG&A expenses during the second and third quarters.

Amortization expense for the nine months ended September 28, 2019 was $50.3 million of net sales. The amortization expense is directly attributed to the Merger and the fair values assigned to our intangible assets including trade names and customer lists which both have finite amortization periods.

47

Unallocated Operating Earnings (Losses), Interest, and Provision (Benefit) for Income Taxes

	Nine Months Ended
(Amounts in thousands)	September 28, 2019		July 29, 2018
Statement of operations data:
SG&A expense	$	(93,411)	$	(66,461)
Acquisition related expenses	(13,284)		(4,969)
Operating loss	(106,695)		(71,430)
Interest expense	(173,134)		(16,913)
Interest income	491		118
Currency transaction gain (loss)	1,084		(92)
Other income, net	665		1,072
Loss on debt extinguishment	—		(21,875)
Income tax provision (benefit)	(4,448)		13,114

Unallocated operating losses include items that are not directly attributed to or allocated to our reporting segments. Such items include legal costs, corporate payroll, and unallocated finance and accounting expenses. The unallocated operating loss for the nine months ended September 28, 2019 increased by $35.3 million or 49.4% compared to the nine months ended July 29, 2018 due primarily to the addition of the Ply Gem corporate cost center, increased stock-based compensation expense and $13.3 million of costs associated with the Merger.

Interest expense increased to $173.1 million for the nine months ended September 28, 2019 compared to $16.9 million for the nine months ended July 29, 2018. The interest expense increase is primarily due to debt obligations assumed in the Merger. Following the consummation of the Merger, our consolidated debt balance increased to $3.3 billion at September 28, 2019 as compared to $407.2 million at October 28, 2018.

Foreign exchange gain (loss) for the nine months ended September 28, 2019 was a $1.1 million gain, compared to a loss of $0.1 million for the nine months ended July 29, 2018, due to exchange rate fluctuations in the Canadian dollar and Mexican peso relative to the U.S. dollar.

Loss on debt extinguishment was $0.0 million for the nine months ended September 28, 2019 compared to $21.9 million for the nine months ended July 29, 2018. During the nine months ended July 29, 2018, we recognized a pretax loss, primarily on the extinguishment of our 8.25% senior notes due 2023, of $21.9 million, of which approximately $15.5 million represented the call premium paid on the redemption of the notes.

Consolidated provision (benefit) for income taxes was a benefit of $4.4 million for the nine months ended September 28, 2019 compared to an expense of $13.1 million for the nine months ended July 29, 2018. The effective tax rate for the nine months ended September 28, 2019 was 20.4% compared to 26.9% for the nine months ended July 29, 2018. The change in the effective tax rate was primarily driven by the continuing effects associated with the enactment of the U.S. Tax Cuts and Jobs Act, limitations on the deduction for net interest expense and the inclusion of Ply Gem operations in the current period.

48

LIQUIDITY AND CAPITAL RESOURCES

General

Our cash, cash equivalents and restricted cash decreased from $147.6 million as of December 31, 2018 to $109.1 million as of September 28, 2019. The following table summarizes our consolidated cash flows for the nine months ended September 28, 2019 and July 29, 2018, respectively (in thousands):

	Nine Months Ended
	September 28, 2019		July 29, 2018
Net cash provided by operating activities	$	67,819	$	56,908
Net cash used in investing activities	(264,675)		(25,214)
Net cash provided by (used in) financing activities	156,959		(53,894)
Effect of exchange rate changes on cash and cash equivalents	1,406		(92)
Net decrease in cash, cash equivalents and restricted cash	(38,491)		(22,292)
Cash, cash equivalents and restricted cash at beginning of period	147,607		65,794
Cash, cash equivalents and restricted cash at end of period	$	109,116	$	43,502

Operating Activities

Our business is both seasonal and cyclical and cash flows from operating activities may fluctuate during the year and from year-to-year due to economic conditions. We rely on cash and short-term borrowings, when needed, to meet cyclical and seasonal increases in working capital needs. These needs generally rise during periods of increased economic activity or due to higher levels of inventory and accounts receivable. During economic slowdowns, working capital needs generally decrease as a result of the reduction of inventories and accounts receivable. Working capital needs also fluctuate based on raw material prices.

Net cash provided by operating activities was $67.8 million during the nine months ended September 28, 2019 compared to net cash provided by operating activities of $56.9 million for the nine months ended July 29, 2018. The change in cash flow provided by operations is due to the inclusion of current period operations from Ply Gem subsequent to the Merger on November 16, 2018 and decreasing inventory that was driven by improved purchasing and lower input costs, partially offset by certain acquisition costs related to the Merger, and normal seasonal trends with higher receivables given summer building months.

Net cash used in accounts receivable was $138.3 million for the nine months ended September 28, 2019 compared to $13.5 million used in accounts receivable for the nine months ended July 29, 2018. There was $114.2 million used in the Ply Gem business during the nine months ended September 28, 2019 which primarily drove this change period over period resulting from the seasonality of our business as we reach the peak building season in our second and third quarters. Net sales in the final months of each respective quarter drove the receivables increase. Net sales for September 2019 were approximately $509.5 million versus approximately $433.5 million for December 2018, an increase of $76.0 million. The improvement in September's net sales reflects the Company’s normal seasonal business as the weather in September is improved compared to December, which allows for further construction activity, increasing the Company’s sales with a corresponding increase in accounts receivable. The remaining changes in accounts receivable period over period relates to seasonal trends in working capital and timing of collections given the change in fiscal year. Our days sales outstanding as of September 28, 2019 and July 29, 2018 were 41.7 days and 33.6 days, respectively with the increase attributed to Ply Gem's inclusion in the 2019 figures.

For the nine months ended September 28, 2019, the change in cash flows relating to inventory was an increase of $63.3 million compared to a decrease of $64.9 million for the nine months ended July 29, 2018. We experienced a $50.7 million decrease in inventory in the Commercial segment as a result of strategic purchasing during our seasonally slower months and decreasing material costs that was partially combined with a $12.6 million inventory decrease in the Ply Gem and ESW businesses during the nine months ended September 28, 2019. Our days inventory on-hand improved to 44.8 days as of September 28, 2019 as compared to 54.3 days as of July 29, 2018 due to strategic purchasing and lower material costs.

Net cash provided by accounts payable for the nine months ended September 28, 2019 was $8.5 million compared to net cash provided by accounts payable of $34.6 million for the nine months ended July 29, 2018. Our vendor payments can significantly fluctuate based on the timing of disbursements, inventory purchases and vendor payment terms. Additionally, there was $6.5 million provided by accounts payable for Ply Gem during the nine months ended September 28, 2019 consistent with the seasonal inventory trends. Our days payable outstanding as of September 28, 2019 decreased to 21.5 days from 35.5 days as of July 29, 2018 from the inclusion of Ply Gem in the 2019 figures.

49

Investing Activities

Net cash used in investing activities was $264.7 million during the nine months ended September 28, 2019 compared to $25.2 million used in investing activities during the nine months ended July 29, 2018. During the nine months ended September 28, 2019, we paid approximately $179.2 million, net of cash acquired, for the acquisition of Environmental Stoneworks and we used $86.4 million for capital expenditures. In the nine months ended July 29, 2018, we used $34.9 million for capital expenditures and sold a business in China, resulting in a net use of $4.4 million of cash, and sold a business in our Commercial segment for $3.0 million. Additionally in the nine months ended July 29, 2018, we sold three manufacturing facilities in our Commercial segment for total consideration of $6.3 million and we received $4.7 million of insurance proceeds as reimbursement for new assets acquired for a facility in the Commercial segment that experienced a fire in June 2016.

Financing Activities

Net cash provided by financing activities was $157.0 million in the nine months ended September 28, 2019 compared to $53.9 million used in the nine months ended July 29, 2018. During the nine months ended September 28, 2019, we borrowed $290.0 million, and repaid $120.0 million of that amount on our Current ABL Facility, to finance the Environmental Stoneworks Acquisition, paid $12.8 million on quarterly installments on our Current Term Loan and used $0.2 million for the purchases of shares related to restricted stock that were withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of restricted stock awards and units. During the three months ended September 28, 2019, we made net payments of $50.0 million on the Current ABL Facility.

During the nine months ended July 29, 2018, we borrowed $85.0 million under our then-existing ABL facility and repaid $85.0 million of that amount, used $46.7 million to repurchase shares of our outstanding common stock under programs approved by the Board of Directors in September 2016 and October 2017 and used $5.0 million for the purchases of shares related to restricted stock that were withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of restricted stock awards and units. Net cash used in the redemption of then-existing Senior Notes and refinancing of long-term debt, including payments of financing costs was $2.2 million. We also received $1.3 million in cash proceeds from the exercises of stock options.

We invest our excess cash in various overnight investments which are issued or guaranteed by the U.S. federal government. 

Debt

Our outstanding indebtedness will mature in 2023 (Current ABL Facility and Current Cash Flow Revolver), 2025 (Current Term Loan Facility), and 2026 (8.00% Senior Notes). We may not be successful in refinancing, extending the maturity or otherwise amending the terms of such indebtedness because of market conditions, disruptions in the debt markets, our financial performance or other reasons. Furthermore, the terms of any refinancing, extension or amendment may not be as favorable as the current terms of our indebtedness. If we are not successful in refinancing our indebtedness or extending its maturity, we and our subsidiaries could face substantial liquidity problems and may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure our indebtedness. Following consummation of the Merger, the Current Term Loan Facility provided for an aggregate principal amount of $2,560.0 million. The Company has also entered into certain interest rate swap agreements to reduce our variable interest rate risk.

The Current ABL Credit Agreement provides for an asset-based revolving credit facility which allows aggregate maximum borrowings by the ABL borrowers of up to $611.0 million. As set forth in the Current ABL Credit Agreement, extensions of credit under the Current ABL Facility are subject to a monthly borrowing base calculation that is based on specified percentages of the value of eligible inventory, eligible accounts receivable and eligible credit card receivables, less certain reserves and subject to certain other adjustments. Availability under the Current ABL Facility will be reduced by issuance of letters of credit as well as any borrowings outstanding thereunder.

As of September 28, 2019, we had an aggregate principal amount of $3,351.4 million of outstanding indebtedness, comprising $170.0 million of borrowings under the Current ABL Facility, $2,536.4 million of borrowings under our Current Term Loan Facility and $645.0 million of 8.00% Senior Notes outstanding. We had no revolving loans outstanding under the Current Cash Flow Revolver. Our excess availability under the Current ABL Facility was $406.0 million as of September 28, 2019. In addition, standby letters of credit totaling approximately $30.3 million were outstanding but undrawn under the ABL Facility.

For additional information, see Note 13 — Long-Term Debt and Note Payable and Note 16 — Fair Value of Financial Instruments and Fair Value Measurement in the notes to the unaudited consolidated financial statements.

50

Cash Flow

We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of inventory levels, expansion plans, debt service requirements and other operating cash needs. To meet our short-term and long-term liquidity requirements, including payment of operating expenses, repayment of debt and the tax receivable liability, we rely primarily on cash from operations. Beyond cash generated from operations, $406.0 million is available with our Current ABL Facility at September 28, 2019, $115.0 million is available with our Current Cash Flow Revolver and we have an unrestricted cash balance of $105.2 million as of September 28, 2019.

We expect to contribute $2.3 million to the Defined Benefit Plans in the year ending December 31, 2019.

We expect that cash generated from operations and our availability under the ABL Credit Facility will be sufficient to provide us the ability to fund our operations and to provide the increased working capital necessary to support our strategy and fund planned capital expenditures of approximately 2.0%-2.5% of net sales for fiscal 2019 and expansion when needed.

Our corporate strategy evaluates potential acquisitions that would provide additional synergies in our Commercial, Siding and Windows segments. From time to time, we may enter into letters of intent or agreements to acquire assets or companies in these business lines. The consummation of these transactions could require substantial cash payments and/or issuance of additional debt.

From time to time, we have used available funds to repurchase shares of our common stock under our stock repurchase programs. On October 10, 2017 and March 7, 2018, the Company announced that its Board of Directors authorized new stock repurchase programs for the repurchase of up to an aggregate of $50.0 million and an additional $50.0 million, respectively, of the Company’s outstanding Common Stock for a cumulative total of $100.0 million. Under these repurchase programs, the Company is authorized to repurchase shares, if at all, at times and in amounts that we deem appropriate in accordance with all applicable securities laws and regulations. Shares repurchased are usually retired. There is no time limit on the duration of the programs. During the nine months ended September 28, 2019, there were no repurchases under the stock repurchase programs. As of September 28, 2019, approximately $55.6 million remained available for stock repurchases, all under the programs announced on October 10, 2017 and March 7, 2018. In addition to repurchases of shares of our common stock under our stock repurchase program, we also withhold shares of restricted stock to satisfy minimum tax withholding obligations arising in connection with the vesting of awards of restricted stock related to our 2003 Long-Term Stock Incentive Plan.

The Company may from time to time take steps to reduce the Company’s debt or otherwise improve the Company’s financial position. These actions could include prepayments, open market debt repurchases, negotiated repurchases, other redemptions or retirements of outstanding debt, opportunistic refinancing of debt and raising additional capital. The amount of prepayments or the amount of debt that may be refinanced, repurchased or otherwise retired, if any, will depend on market conditions, trading levels of the Company’s debt, the Company’s cash position, compliance with debt covenants and other considerations. Affiliates of the Company may also purchase the Company’s debt from time to time through open market purchases or other transactions. In such cases, the Company’s debt may not be retired, in which case the Company would continue to pay interest in accordance with the terms of the debt, and the Company would continue to reflect the debt as outstanding on its consolidated balance sheets.

OFF-BALANCE SHEET ARRANGEMENTS

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 28, 2019, we were not involved in any material unconsolidated SPE transactions.

CONTRACTUAL OBLIGATIONS

In general, purchase orders issued in the normal course of business can be terminated in whole or in part for any reason without liability until the product is received.

In connection with the Merger, on November 16, 2018, NCI assumed (i) the obligations of Ply Gem Midco, a subsidiary of Ply Gem immediately prior to the consummation of the Merger, as borrower under the Current Cash Flow Credit Agreement, (ii) the obligations of Ply Gem Midco as parent borrower under the Current ABL Credit Agreement and (iii) the obligations of Ply Gem Midco as issuer under the Current Indenture.

51

The following table shows our debt contractual obligations as of September 28, 2019 (in thousands):

	Payments due by period
Contractual Obligation	Total		Less than 1 year		1 – 3 years		3 – 5 years		More than 5 years
Total debt(1)	$	3,351,397	$	25,620	$	51,240	$	221,240	$	3,053,297
Interest payments on debt(2)	1,153,720		204,088		391,284		385,352		172,996
Operating lease liabilities(3)	402,740		86,367		146,251		70,284		99,838
Purchase obligations(4)	64,468		64,468		—		—		—
Total	$	4,972,325	$	380,543	$	588,775	$	676,876	$	3,326,131

(1)Reflects amounts outstanding under the Current ABL Facility, Current Term Loan Facility and the 8.00% Senior Notes and excludes any amounts potentially due under the excess cash flow provisions within the Current Term Loan Facility. Amounts currently drawn on the Current ABL Facility are reflected in the "3-5 years" column consistent with the non-current classification on the consolidated balance sheets.

(2)Interest payments were calculated based on the variable rate in effect at September 28, 2019 for the Current ABL Facility (applied to the outstanding ABL balance as of September 28, 2019) and Current Term Loan Facility, and at 8.00% on the 8.00% Senior Notes.

(3)Lease liabilities are stated at gross payment obligations under the terms of existing lease agreements and are not reduced for the discount rate applied to the minimum lease payments that was used to calculate the minimum lease liabilities recorded under ASC 842, as represented in our consolidated balances sheets.

(4)Purchase obligations are defined as purchase agreements that are enforceable and legally binding and that specify all significant terms, including quantity, price and the approximate timing of the transaction. These obligations are related primarily to inventory purchases under three 2019 contracts that were finalized during 2018.

There have been no other material changes in our future contractual obligations since the end of fiscal 2018.

See Note 13 — Long-Term Debt and Note Payable in the notes to the unaudited consolidated financial statements for more information on the material terms of our Current Cash Flow Facilities, 8.00% Senior Notes, and Current ABL Facility.

CRITICAL ACCOUNTING POLICIES 

Critical accounting policies are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. Our most critical accounting policies include those that pertain to revenue recognition, insurance accruals, share-based compensation, income taxes, accounting for acquisitions, intangible assets and goodwill, allowance for doubtful accounts, inventory valuation, property, plant and equipment valuation and contingencies, which are described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended October 28, 2018.

We adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, as of October 29, 2018 for the Transition Period. ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported. See Note 1 — Summary of Significant Accounting Policies in the notes to the unaudited consolidated financial statements for an update on the description of our revenue recognition policies as a result of the adoption of ASU 2014-09.

We adopted ASU No. 2016-02, Leases, as of January 1, 2019 for the nine months ended September 28, 2019. ASU 2016-02 provides enhancements to increase transparency to lease obligations by recognizing right-of-use assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. See Note 1 — Summary of Significant Accounting Policies in the notes to the unaudited consolidated financial statements for an update on the description of our lease accounting policies as a result of the adoption of ASU 2016-02.

RECENT ACCOUNTING PRONOUNCEMENTS 

See Note 2 — Accounting Pronouncements in the notes to the unaudited consolidated financial statements for information on recent accounting pronouncements.

52

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Commercial Business

We are subject to market risk exposure related to volatility in the price of steel. For the three months ended September 28, 2019, material costs (predominantly steel costs) constituted approximately 64% of our Commercial segment cost of sales. Our business is heavily dependent on the price and supply of steel. Our various products are fabricated from steel produced by mills to forms including bars, plates, structural shapes, sheets, hot-rolled coils and galvanized or Galvalume® — coated coils (Galvalume® is a registered trademark of BIEC International, Inc.). The steel industry is highly cyclical in nature, and steel prices have been volatile in recent years and may remain volatile in the future. Steel prices are influenced by numerous factors beyond our control, including general economic conditions, domestically and internationally, the availability of raw materials, competition, labor costs, freight and transportation costs, production costs, import duties and other trade restrictions. Based on the cyclical nature of the steel industry, we expect steel prices will continue to be volatile.

Although we have the ability to purchase steel from a number of suppliers, a production cutback by one or more of our current suppliers could create challenges in meeting delivery schedules to our customers. Because we have periodically adjusted our contract prices, we have generally been able to pass increases in our raw material costs through to our customers.

We normally do not maintain an inventory of steel in excess of our current production requirements. However, from time to time, we may purchase steel in advance of announced steel price increases. Therefore, our inventory may increase if demand for our products declines. We can give no assurance that steel will remain available or that prices will not continue to be volatile. While most of our sales contracts have escalation clauses that allow us, under certain circumstances, to pass along all or a portion of increases in the price of steel after the date of the contract but prior to delivery, for competitive or other reasons we may not be able to pass such price increases along. If the available supply of steel declines, we could experience price increases that we are not able to pass on to our customers, a deterioration of service from our suppliers or interruptions or delays that may cause us not to meet delivery schedules to our customers. Any of these problems could adversely affect our results of operations and financial condition.

Siding and Windows Businesses

We are subject to market risk with respect to the pricing of our principal raw materials, which include PVC resin, aluminum and glass. If prices of these raw materials were to increase dramatically, we may not be able to pass such increases on to our customers and, as a result, gross margins could decline significantly. We manage the exposure to commodity pricing risk by increasing our selling prices for corresponding material cost increases, continuing to diversify our product mix, strategic buying programs and vendor partnering. The average market price for PVC resin was estimated to have increased approximately 2.4% for the nine months ended September 28, 2019 compared to the nine months ended September 30, 2018.

Other Commodity Risks

In addition to market risk exposure related to the volatility in the price of steel, aluminum, PVC resin, and glass, we are subject to market risk exposure related to volatility in the price of natural gas. As a result, we occasionally enter into both index-priced and fixed-price contracts for the purchase of natural gas. We have evaluated these contracts to determine whether the contracts are derivative instruments. Certain contracts that meet the criteria for characterization as a derivative instrument may be exempted from hedge accounting treatment as normal purchases and normal sales and, therefore, these forward contracts are not marked to market. At September 28, 2019, all of our contracts for the purchase of natural gas and aluminum met the scope exemption for normal purchases and normal sales.

Interest Rates

We are subject to market risk exposure related to changes in interest rates on our Current Cash Flow Facilities and Current ABL Facility, which provides for borrowings of up to $2,675.0 million on the Current Cash Flow Facilities and up to $611.0 million on the Current ABL Facility. These instruments bear interest at an agreed upon percentage point spread from either the prime interest rate or LIBOR. Assuming the Current Cash Flow Revolver is fully drawn, each quarter point increase or decrease in the interest rate would change our interest expense by approximately $6.7 million per year for the Current Cash Flow Facilities. Assuming the Current ABL Facility is fully drawn, each quarter point increase or decrease in the interest rate would change our interest expense by approximately $1.5 million per year. The fair value of our term loan credit facilities at September 28, 2019 and October 28, 2018 was approximately $2,478.3 million and $412.4 million, respectively, compared to a face value of approximately $2,536.4 million and $412.9 million, respectively. During the nine months ended September 28, 2019, we entered into cash flow interest rate swap hedge contracts for $1.5 billion to mitigate the exposure risk of our floating interest rate debt. The interest rate swaps effectively convert a portion of the floating rate interest payment into a fixed rate payment. At September 28, 2019, our cash flow hedge contracts had a fair value liability of $38.9 million and is recorded as a non-current liability as of September 28, 2019 in our consolidated balance sheets.

53

See Note 13 — Long-Term Debt and Note Payable in the notes to the unaudited consolidated financial statements for information on the material terms of our long-term debt.

Labor Force Risk

Our manufacturing process is highly engineered but involves manual assembly, fabrication, and manufacturing processes. We believe that our success depends upon our ability to employ, train, and retain qualified personnel with the ability to design, utilize and enhance these processes and our products. In addition, our ability to expand our operations depends in part on our ability to minimize labor inefficiencies and increase our labor force to meet the U.S. housing market demand. A significant increase in the wages paid by competing employers could result in a reduction of our labor force, increases in the wage rates that we must pay, or both. If either of these events were to occur, our cost structure could increase, our margins could decrease and any growth potential could be impaired. Historically, the Company has believed that the lag period between breaking ground on a new housing start and the utilization of our products on the exterior of a home is between 90 to 120 days.

Foreign Currency Exchange Rates

We are exposed to the effect of exchange rate fluctuations on the U.S. dollar value of foreign currency denominated operating revenue and expenses. The functional currency for our Mexico operations is the U.S. dollar. Adjustments resulting from the re-measurement of the local currency financial statements into the U.S. dollar functional currency, which uses a combination of current and historical exchange rates, are included in net income in the current period. Net foreign currency re-measurement loss was $0.1 million for the three months ended September 28, 2019 and insignificant for the three months ended July 29, 2018. Net foreign currency re-measurement gain was $0.4 million and $0.1 million for the nine months ended September 28, 2019 and July 29, 2018, respectively.

The functional currency for our Canada operations is the Canadian dollar. Translation adjustments resulting from translating the functional currency financial statements into U.S. dollar equivalents are reported separately in accumulated other comprehensive income (loss) in stockholders’ equity. The net foreign currency exchange loss included in net income for the three months ended September 28, 2019 and July 29, 2018 was $0.5 million and $0.3 million, respectively. The net foreign currency exchange gain (loss) included in net income (loss) for the nine months ended September 28, 2019 and July 29, 2018 was $0.8 million and $(0.2) million, respectively. Net foreign currency translation adjustment, net of tax, and included in other comprehensive income (loss) for the three months ended September 28, 2019 and July 29, 2018 was $(1.9) million and $(0.1) million, respectively. Net foreign currency translation adjustment, net of tax, and included in other comprehensive income (loss) for the nine months ended September 28, 2019 and July 29, 2018 was $4.3 million and $(0.1) million, respectively.

In July 2019, we entered into forward contracts with a financial institution through December 31, 2019 for $21.9 million at an average Canadian dollar rate of 1.311 to hedge our future inventory purchases in Canada. In the future, we may enter into additional foreign currency hedging contracts, to further mitigate the exposure risk of currency fluctuation against the Canadian dollar and/or the Mexican Peso.

54

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 28, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding the required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management believes that our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and based on the evaluation of our disclosure controls and procedures as of September 28, 2019, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at such reasonable assurance level. 

Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 28, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

55

CORNERSTONE BUILDING BRANDS, INC.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

See Part I, Item 1, “Unaudited Consolidated Financial Statements”, Note 19, which is incorporated herein by reference.

Item 1A. Risk Factors.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 28, 2018 and our Transition Report on Form 10-Q for the transition period from October 29, 2018 to December 31, 2018 (the “Transition Report”). The risks disclosed in our previous Annual Report on Form 10-K, our Transition Report and information provided elsewhere in this report, could materially affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known or we currently deem to be immaterial may materially adversely affect our business, financial condition or results of operations. We believe there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended October 28, 2018 and our Transition Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table shows our purchases of our Common Stock during the three months ended September 28, 2019:

Period	(a) Total Number of Shares Purchased(1)	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Programs	(d) Maximum Dollar Value of Shares that May Yet be Purchased Under Publicly Programs(2) (in thousands)
June 30, 2019 to July 27, 2019	2,630	$	5.83	—	$	55,573
July 28, 2019 to August 24, 2019	9,057	$	4.94	—	55,573
August 25, 2019 to September 28, 2019	925	$	4.69	—	55,573
Total	12,612	$	5.11	—

(1)The total number of shares purchased includes our Common Stock repurchased under the programs described below as well as shares of restricted stock that were withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of awards of restricted stock. The required withholding is calculated using the closing sales price on the previous business day prior to the vesting date as reported by the NYSE.

(2)On October 10, 2017 and March 7, 2018, the Company announced that its Board of Directors authorized new stock repurchase programs for up to an aggregate of $50.0 million and an additional $50.0 million, respectively, of the Company’s Common Stock for a cumulative total of $100.0 million. Under these repurchase programs, the Company is authorized to repurchase shares, if at all, at times and in amounts that we deem appropriate in accordance with all applicable securities laws and regulations. Shares repurchased are usually retired. There is no time limit on the duration of these programs. As of September 28, 2019, approximately $55.6 million remained available for stock repurchases under the programs announced on October 10, 2017 and March 7, 2018.

56

Item 6. Exhibits.

Index to Exhibits

Exhibit Number	Description
*31.1	Rule 13a-14(a)/15d-14(a) Certifications (Section 302 of the Sarbanes-Oxley Act of 2002)
*31.2	Rule 13a-14(a)/15d-14(a) Certifications (Section 302 of the Sarbanes-Oxley Act of 2002)
**32.1	Certifications pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Section 906 of the Sarbanes-Oxley Act of 2002)
**32.2	Certifications pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (Section 906 of the Sarbanes-Oxley Act of 2002)
*101.INS	XBRL Instance Document - The Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*101.SCH	XBRL Taxonomy Extension Schema Document
*101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF	XBRL Taxonomy Definition Linkbase Document
*101.LAB	XBRL Taxonomy Extension Label Linkbase Document
*101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith
**	Furnished herewith

57

SIGNATURE

 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CORNERSTONE BUILDING BRANDS, INC.
Date: November 6, 2019	By:	/s/ James S. Metcalf
		James S. Metcalf
		Chairman of the Board and Chief Executive Officer
Date: November 6, 2019	By:	/s/ Jeffrey S. Lee
		Jeffrey S. Lee
		Executive Vice President and Chief Financial Officer

58

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(b)/15d-14(a)

I, James S. Metcalf, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cornerstone Building Brands, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2019

/s/ James S. Metcalf

James S. Metcalf

Chairman of the Board and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(b)/15d-14(a)

I, Jeffrey S. Lee, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cornerstone Building Brands, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2019

/s/ Jeffrey S. Lee

Jeffrey S. Lee

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT

In connection with the quarterly report on Form 10-Q of Cornerstone Building Brands, Inc. (the “Company”) for the quarter ended September 28, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James S. Metcalf, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. I have reviewed this Report of the Company;

2. This Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

3. The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 6, 2019

/s/ James S. Metcalf

James S. Metcalf

Chairman of the Board and Chief Executive Officer

(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to Cornerstone Building Brands, Inc. and will be retained by Cornerstone Building Brands, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This Certification shall not be deemed to be “filed” or part of the Report or incorporated by reference into any of the registrant’s filings with the Securities and Exchange Commission by implication or by any reference in any such filing to the Report.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT

In connection with the quarterly report on Form 10-Q of Cornerstone Building Brands, Inc. (the “Company”) for the quarter ended September 28, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey S. Lee, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. I have reviewed this Report of the Company;

2. This Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

3. The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 6, 2019

/s/ Jeffrey S. Lee

Jeffrey S. Lee

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

A signed original of this written statement required by Section 906 has been provided to Cornerstone Building Brands, Inc. and will be retained by Cornerstone Building Brands, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This Certification shall not be deemed to be “filed” or part of the Report or incorporated by reference into any of the registrant’s filings with the Securities and Exchange Commission by implication or by any reference in any such filing to the Report.

XML

CD&R INVESTOR GROUP (Details) - USD ($) $ / shares in Units, $ in Thousands		9 Months Ended
	Dec. 11, 2017	Sep. 28, 2019	Jul. 29, 2018	Oct. 28, 2018
Class of Stock [Line Items]
Payments for repurchase of common stock		$ 0	$ 46,705
CD&R Funds
Class of Stock [Line Items]
Ownership percentage		49.30%		34.40%
Secondary Offering | CD&R Funds
Class of Stock [Line Items]
Common stock offered (in shares)	7,150,000
Common stock price per share (in USD per share)	$ 19.36
Common stock repurchased (in shares)	1,150,000
Payments for repurchase of common stock	$ 22,300

XML

INCOME TAXES - Narrative (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 28, 2019	Oct. 28, 2018
Valuation Allowance [Line Items]
Effective tax rate (as a percent)	40.90%
Effective tax rate, after unrecognized tax benefits and state income taxes (as a percent)	20.40%
Increase in tax reserves	$ 6,900
Liability for unrecognized tax benefits	11,900
Payable pursuant to a tax receivable agreement	24,760	$ 0
Canadian Jurisdiction
Valuation Allowance [Line Items]
Valuation allowance	$ 21,400

XML

ACQUISITIONS - Schedule of Pro Forma Information (Details) - Environmental Stoneworks - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 28, 2019	Jul. 29, 2018	Sep. 28, 2019	Jul. 29, 2018
Business Acquisition, Pro Forma Information, Nonrecurring Adjustment [Line Items]
Net sales	$ 1,285,043	$ 1,381,820	$ 3,661,428	$ 3,668,062
Net income (loss) applicable to common shares	$ 28,456	$ (56,165)	$ 10,532	$ (221,019)
Net income (loss) per common share:
Basic (in dollars per share)	$ 0.23	$ (0.45)	$ 0.08	$ (1.76)
Diluted (in dollars per share)	$ 0.23	$ (0.45)	$ 0.08	$ (1.76)

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 28, 2019	Jul. 29, 2018	Sep. 28, 2019	Jul. 29, 2018
Disaggregation of Revenue [Line Items]
Total net sales	$ 1,285,043	$ 548,525	$ 3,645,332	$ 1,426,943
Commercial
Disaggregation of Revenue [Line Items]
Total net sales	464,906	548,525	1,370,152	1,426,943
Commercial | Metal building products
Disaggregation of Revenue [Line Items]
Total net sales	320,028	384,311	914,623	964,924
Commercial | Insulated metal panels
Disaggregation of Revenue [Line Items]
Total net sales	109,322	106,605	332,403	303,910
Commercial | Metal coil coating
Disaggregation of Revenue [Line Items]
Total net sales	35,556	57,609	123,126	158,109
Siding
Disaggregation of Revenue [Line Items]
Total net sales	315,799	0	840,601	0
Siding | Vinyl siding
Disaggregation of Revenue [Line Items]
Total net sales	148,912	0	400,220	0
Siding | Metal
Disaggregation of Revenue [Line Items]
Total net sales	75,933	0	199,265	0
Siding | Injection molded
Disaggregation of Revenue [Line Items]
Total net sales	17,429	0	47,163	0
Siding | Stone
Disaggregation of Revenue [Line Items]
Total net sales	32,254	0	70,441	0
Siding | Other Products and Services
Disaggregation of Revenue [Line Items]
Total net sales	41,271	0	123,512	0
Windows
Disaggregation of Revenue [Line Items]
Total net sales	504,338	0	1,434,579	0
Windows | Other Products and Services
Disaggregation of Revenue [Line Items]
Total net sales	11,283	0	39,568	0
Windows | Vinyl windows
Disaggregation of Revenue [Line Items]
Total net sales	481,104	0	1,355,333	0
Windows | Aluminum windows
Disaggregation of Revenue [Line Items]
Total net sales	$ 11,951	$ 0	$ 39,678	$ 0

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 28, 2019

Fair Value Disclosures [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, restricted cash, trade accounts receivable, accounts payable and notes payable approximate fair value as of September 28, 2019 and October 28, 2018, respectively, because of their relatively short maturities. The carrying amounts of the indebtedness under the Current ABL Facility and Current Cash Flow Revolver approximate fair value as the interest rates are variable and reflective of market rates. At September 28, 2019, there was $170.0 million of borrowings outstanding under the Current ABL Facility and no outstanding indebtedness under the Current Cash Flow Revolver. The fair values of the remaining financial instruments not currently recognized at fair value on our consolidated balance sheets at the respective period ends were (in thousands): 

	September 28, 2019				October 28, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term Loan Facilities	$	2,536,397	$	2,478,263	$	412,925	$	412,409
8.00% Senior Notes	645,000		632,100		—		—

The fair values of the term loan facility were based on recent trading activities of comparable market instruments, which are level 2 inputs and the fair value of the 8.00% senior notes was based on quoted prices in active markets for the identical liabilities, which are level 1 inputs.

Fair Value Measurements

ASC Subtopic 820-10, Fair Value Measurements and Disclosures, requires us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.

Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs.

Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value. There have been no changes in the methodologies used as of September 28, 2019 and October 28, 2018.

Money market: Money market funds have original maturities of three months or less. The original cost of these assets approximates fair value due to their short-term maturity.

Mutual funds: Mutual funds are valued at the closing price reported in the active market in which the mutual fund is traded. 

Assets held for sale: Assets held for sale are valued based on current market conditions, prices of similar assets in similar condition and expected proceeds from the sale of the assets, representative of Level 3 inputs.

Deferred compensation plan liability: Deferred compensation plan liability is comprised of phantom investments in the deferred compensation plan and is valued at the closing price reported in the active markets in which the money market and mutual funds are traded.

Interest rate swap liability: Interest rate swap liabilities are based on cash flow hedge contracts that have fixed rate structures and are measured against market-based LIBOR yield curves. These interest rate swaps were classified within Level 2 of the fair value hierarchy because they were valued using alternative pricing sources or models that utilized market observable inputs, including current and forward interest rates.

Foreign currency hedge: The fair value of the foreign currency forward contract agreement is estimated using industry standard valuation models using market-based observable inputs, including spot rates, forward points, interest rates and volatility inputs (Level 2).

The following tables summarize information regarding our financial assets and liabilities that are measured at fair value on a recurring basis as of September 28, 2019 and October 28, 2018, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

	September 28, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Short-term investments in deferred compensation plan(1):
Money market	$	27	$	—	$	—	$	27
Mutual funds – Growth	991		—		—		991
Mutual funds – Blend	1,625		—		—		1,625
Mutual funds – Foreign blend	528		—		—		528
Mutual funds – Fixed income	—		398		—		398
Total short-term investments in deferred compensation plan(2)	3,171		398		—		3,569
Foreign currency hedge(4)	—		95		—		—
Total assets	$	3,171	$	493	$	—	$	3,664
Liabilities:
Deferred compensation plan liability(2)	$	—	$	3,564	$	—	$	3,564
Interest rate swap liability(3)	—		38,853		—		38,853
Total liabilities	$	—	$	42,417	$	—	$	42,417

	October 28, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Short-term investments in deferred compensation plan(1):
Money market	$	369	$	—	$	—	$	369
Mutual funds – Growth	1,118		—		—		1,118
Mutual funds – Blend	2,045		—		—		2,045
Mutual funds – Foreign blend	812		—		—		812
Mutual funds – Fixed income	—		941		—		941
Total short-term investments in deferred compensation plan(2)	4,344		941		—		5,285
Total assets	$	4,344	$	941	$	—	$	5,285
Liabilities:
Deferred compensation plan liability(2)	$	—	$	4,639	$	—	$	4,639
Total liabilities	$	—	$	4,639	$	—	$	4,639

(1)Unrealized holding gains (losses) for the three months ended September 28, 2019 and July 29, 2018 were $(0.1) million and $0.2 million, respectively. Unrealized holding gains for the nine months ended September 28, 2019 and July 29, 2018 were $0.4 million and $0.3 million, respectively. These unrealized holding gains (losses) were substantially offset by changes in the deferred compensation plan liability.

(2)The Company records the short-term investments in deferred compensation plan within investments in debt and equity securities, at market, and the deferred compensation plan liability within accrued compensation and benefits on the consolidated balance sheets.

(3)In May 2019, the Company entered into interest rate swaps to mitigate variability in forecasted interest payments on $1,500.0 million of the Company’s unsecured variable debt. The interest rate swaps effectively convert a portion of the floating rate interest payments into a fixed rate interest payment. There are three interest rate swaps that cover $500.0 million of notional debt each and fix the interest rate at 5.918%, 5.906% and 5.907%, respectively. The Company designated the interest rate swaps as qualifying hedging instruments and accounts for these derivatives as cash flow hedges. The interest rate swap liability is included within other long-term liabilities on the consolidated balance sheets.

(4)In July 2019, the Company entered into a forward contract agreement to hedge approximately $21.9 million of its 2019 non-functional currency inventory purchases. This forward contract was established to protect the Company from variability in cash flows attributable to changes in the U.S. dollar relative to the Canadian dollar. As a cash flow hedge, unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The forward contract is highly correlated to the changes in the U.S. dollar relative to the Canadian dollar. Unrealized gains and losses on these agreements are designated as effective or ineffective. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion of such gains or losses is recorded as a component of cost of goods sold. Future realized gains and losses in connection with each inventory purchase will be reclassified from accumulated other comprehensive income or loss to cost of goods sold. The gains and losses on the derivative contract that are reclassified from accumulated other comprehensive income or loss to current period earnings are included in the line item in which the hedged item is recorded in the same period the forecasted transaction affects earnings. During the three months ended September 28, 2019, the Company realized a gain of approximately $0.1 million within cost of goods sold in the consolidated statement of operations based on these cash flow hedges. The changes in fair values of derivatives that have been designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income or loss and are reclassified into cost of goods sold in the same period the hedged item affects earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair value or cash flows of the underlying exposures being hedged. The changes in the fair value of derivatives that do not qualify as effective are immediately recognized in earnings.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 28, 2019

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements for Cornerstone Building Brands, Inc. have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, the unaudited consolidated financial statements included herein contain all adjustments, which consist of normal recurring adjustments, necessary to fairly present the Company’s financial position, results of operations and cash flows for the periods indicated. Operating results for the period from January 1, 2019 through September 28, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.

Reporting Periods

Reporting Periods

On November 16, 2018, the Company’s Board of Directors approved a change to the Company’s fiscal year end from a 52/53 week year with the Company’s fiscal year end on the Sunday closest to October 31 to a calendar year of the twelve-month period from January 1 to December 31. The Company elected to change its fiscal year end in connection with the Merger (as defined below) to align the Company’s fiscal year end with Ply Gem’s (as defined below). As a result of this change, the Company filed a Transition Report on Form 10-Q that included the financial information for the transition period from October 29, 2018 to December 31, 2018, which period is referred to herein as the “Transition Period”. The financial statements contained herein are being filed as part of a Quarterly Report on Form 10-Q for the period from June 30, 2019 through September 28, 2019. References in this Quarterly Report on Form 10-Q to “fiscal year 2018” or “fiscal 2018” refer to the period from October 30, 2017 through October 28, 2018. The results of operations for the three and nine months ended July 29, 2018 are presented herein as the comparable period to the three and nine months ended September 28, 2019. The Company did not recast the consolidated financial statements for the period from June 30, 2018 to September 28, 2018 or January 1, 2018 to September 28, 2018 because the financial reporting processes in place at that time included certain procedures that were completed only on a quarterly basis. Consequently, to recast this period would have been impractical.

The Company’s current fiscal quarters are based on a four-four-five week calendar with periods ending on the Saturday of the last week in the quarter except that December 31st will always be the year-end date. Therefore, the financial results of certain fiscal quarters may not be comparable to prior fiscal quarters.

Adopted Accounting Pronouncements and Recent Accounting Pronouncements

Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, to increase transparency and comparability among organizations by recognizing right-of-use assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. Effective January 1, 2019, the Company adopted the guidance initially applying the standard to leases existing at, or entered into after, the January 1, 2019 adoption date. The Company has elected only the package of three transition practical expedients available under the new standard. The short-term lease recognition exemption has been elected for all leases that qualify as well as the practical expedient to not separate lease and non-lease components for all leases other than leases of durable tooling.

The adoption of the new standard resulted in the recognition of additional operating liabilities of $304.1 million with corresponding right-of-use (“ROU”) assets of $304.1 million, based on the present value of the remaining minimum rental payments. The Company recognized no adjustment to opening balance of accumulated deficit as of January 1, 2019. The new standard also provides for practical expedients for an entity’s ongoing accounting. Additional disclosures on leases are included in Note 8 — Leases.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software—General (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. Effective January 1, 2019, the Company early adopted this guidance on a prospective basis. The application of ASU 2018-15 did not have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) as subsequently amended. ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We performed an assessment of the differences between the new revenue standard and current accounting practices. As part of our implementation process, we identified significant revenue streams and evaluated a sample of contracts within each significant revenue stream in order to determine the effect of the standard on our revenue recognition practices. We completed this evaluation and have established new policies, procedures, and internal controls in our adoption of the new revenue standard. We adopted this guidance on a modified retrospective basis, pursuant to which we recorded a $2.6 million adjustment to increase the opening balance of accumulated deficit as of October 29, 2018 (the first day of the Transition Period) for the impact of applying the new revenue standard. The adjustment related to changes in the timing of revenue recognition for our weathertightness warranties in our Commercial segment. Additional disaggregated revenue disclosures are included in Note 1 — Summary of Significant Accounting Policies.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on eight cash flow classification issues with the objective of reducing differences in practice. We adopted this guidance on a retrospective basis in the Transition Period. The application of ASU 2016-15 did not have a material impact on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. We adopted this guidance on a modified retrospective basis, pursuant to which we recorded a $0.7 million adjustment to increase the opening balance of accumulated deficit as of October 29, 2018 (the first day of the Transition Period) for the impact of applying the new standard.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), which clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. Entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. An entity with a material balance of restricted cash and restricted cash equivalents must disclose information about the nature of the restrictions. We adopted this guidance on a retrospective basis in the Transition Period. The adoption of this guidance resulted in restricted cash activity previously included in financing activities on our consolidated statement of cash flows to be included as part of the beginning and ending balances of cash and cash equivalents and restricted cash in our consolidated statements of cash flows.

In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends the requirements related to the income statement presentation of the components of net periodic benefit cost for employer sponsored defined benefit pension and other postretirement benefit plans. Under the new guidance, an entity must disaggregate and present the service cost component of net periodic benefit cost in the same income statement line items as other employee compensation costs arising from services rendered during the period, and only the service cost component will be eligible for capitalization. Other components of net periodic benefit cost will be presented separately from the line items that include the service cost. We adopted this guidance in the Transition Period on a retrospective basis to adopt the requirement for separate presentation of the income statement service cost and other components, and on a prospective transition method to adopt the requirement to limit the capitalization of benefit cost to the service component. The adoption of ASU 2017-07 did not have a material impact on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides clarity on the accounting for modifications of stock-based awards. The Company adopted this guidance on a prospective basis in the Transition Period for share-based payment awards modified on or after the adoption date. The adoption of ASU 2017-09 did not have a material impact on our consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. This ASU’s objectives are to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities; and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. ASU No. 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018. The Company adopted this guidance on a prospective basis for fiscal 2019. The adoption of ASU 2017-12 did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires an entity to measure all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now incorporate forward-looking information based on expected losses to estimate credit losses. ASU 2016-13 will be effective for our fiscal year ending December 31, 2020, including interim periods within that fiscal year. We are evaluating the impact that the adoption of this ASU will have on our consolidated financial position, result of operations and cash flows.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies disclosure requirements for fair value measurements under ASC 820, Fair Value Measurement. We will be required to adopt this guidance retrospectively in the annual and interim periods for our fiscal year ending December 31, 2020, with early adoption permitted. We are evaluating the impact of adopting this guidance.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which removes disclosures no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. We will be required to adopt this guidance for our fiscal year ending December 31, 2020, with early adoption permitted. Certain provisions are applied prospectively while others are applied retrospectively. We are evaluating the impact of adopting this guidance.

Additionally, there were various other accounting standards and interpretations issued that the Company has not yet been required to adopt, none of which is expected to have a material impact on the Company’s consolidated financial statements going forward.

Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases, applying the standard to leases existing at the effective date. For arrangements entered into following the transition date, applicability of the standard is determined at inception.

The Company leases certain manufacturing, warehouse and distribution locations, vehicles and equipment, including fleet vehicles. Many of these leases have options to terminate prior to or extend beyond the end of the term. The exercise of the majority of lease renewal options is at the Company’s sole discretion. Some lease agreements have variable payments, the majority of these are real estate agreements in which future increases in rent are based on an index. Lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating lease liabilities are recognized based on the present value of the future minimum lease payments over the reasonably expected holding period at commencement date. Few of the Company’s lease contracts provide a readily determinable implicit rate. For these contracts, an estimated incremental borrowing rate (“IBR”) is utilized, based on information available at the inception of the lease. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease.

XML

WARRANTY (Tables)

9 Months Ended

Sep. 28, 2019

Product Warranties Disclosures [Abstract]

Schedule of Acquired Accrued Warranty Obligation and Deferred Warranty Revenue

The following table represents the rollforward of our accrued warranty obligation and deferred warranty revenue activity for the nine months ended September 28, 2019 and July 29, 2018 (in thousands):

	Nine Months Ended
	September 28, 2019		July 29, 2018
Beginning balance	$	134,515	$	32,418
Purchase accounting adjustments	84,280		—
Warranties sold	2,313		2,616
Revenue recognized	(2,075)		(1,971)
Expense	22,006		—
Settlements	(22,285)		(1,654)
Ending balance	218,754		31,409
Less: current portion	31,294		5,970
Total, less current portion	$	187,460	$	25,439

XML

INTANGIBLES (Tables)

9 Months Ended

Sep. 28, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived Intangible Assets

The table that follows presents the major components of intangible assets as of September 28, 2019 and October 28, 2018 (in thousands):

	Range of Life (Years)			Cost		Accumulated Amortization		Net Carrying Value
As of September 28, 2019
Amortized intangible assets:
Trademarks/Trade names(1)	6	–	15	$	252,942	$	(34,257)	$	218,685
Customer lists and relationships	5	–	20	1,737,060		(170,808)		1,566,252
Total intangible assets				$	1,990,002	$	(205,065)	$	1,784,937
(1) During the nine months ended September 28, 2019, the Company began amortization of trade names previously classified as indefinite-lived over an eight-year period.
	Range of Life (Years)			Cost		Accumulated Amortization		Net Carrying Value
As of October 28, 2018
Amortized intangible assets:
Trademarks/Trade names		15		$	29,167	$	(12,657)	$	16,510
Customer lists and relationships	12	–	20	136,210		(38,646)		97,564
Indefinite-lived intangible assets:
Trade names				13,455		—		13,455
Total intangible assets				$	178,832	$	(51,303)	$	127,529

Schedule of Indefinite-Lived Intangible Assets

The table that follows presents the major components of intangible assets as of September 28, 2019 and October 28, 2018 (in thousands):

	Range of Life (Years)			Cost		Accumulated Amortization		Net Carrying Value
As of September 28, 2019
Amortized intangible assets:
Trademarks/Trade names(1)	6	–	15	$	252,942	$	(34,257)	$	218,685
Customer lists and relationships	5	–	20	1,737,060		(170,808)		1,566,252
Total intangible assets				$	1,990,002	$	(205,065)	$	1,784,937
(1) During the nine months ended September 28, 2019, the Company began amortization of trade names previously classified as indefinite-lived over an eight-year period.
	Range of Life (Years)			Cost		Accumulated Amortization		Net Carrying Value
As of October 28, 2018
Amortized intangible assets:
Trademarks/Trade names		15		$	29,167	$	(12,657)	$	16,510
Customer lists and relationships	12	–	20	136,210		(38,646)		97,564
Indefinite-lived intangible assets:
Trade names				13,455		—		13,455
Total intangible assets				$	178,832	$	(51,303)	$	127,529

XML

DEFINED BENEFIT PLANS

9 Months Ended

Sep. 28, 2019

Retirement Benefits [Abstract]

DEFINED BENEFIT PLANS

DEFINED BENEFIT PLANS

RCC Pension Plan — With the acquisition of Robertson-Ceco II Corporation (“RCC”) on April 7, 2006, we assumed a defined benefit plan (the “RCC Pension Plan”). Benefits under the RCC Pension Plan are primarily based on years of service and the employee’s compensation. The RCC Pension Plan is frozen and, therefore, employees do not accrue additional service benefits. Plan assets of the RCC Pension Plan are invested in broadly diversified portfolios of government obligations, mutual funds, stocks, bonds, fixed income securities and master limited partnerships.

CENTRIA Benefit Plans — As a result of the CENTRIA Acquisition on January 16, 2015, we assumed noncontributory defined benefit plans covering certain hourly employees (the “CENTRIA Benefit Plans”) which are closed to new participants. Benefits under the CENTRIA Benefit Plans are calculated based on fixed amounts for each year of service rendered, although benefits accruals for one of the plans previously ceased. Plan assets of the CENTRIA Benefit Plans are invested in broadly diversified portfolios of domestic and international equity mutual funds, bonds, mortgages and other funds. CENTRIA also sponsors postretirement medical and life insurance plans that cover certain of its employees and their spouses (the “OPEB Plans”).

In addition to the CENTRIA Benefit Plans, CENTRIA contributes to a multi-employer plan, the Steelworkers Pension Trust. The minimum required annual contribution to this plan is $0.3 million. The current contract expires on June 1, 2022. If we were to withdraw our participation from this multi-employer plan, CENTRIA may be required to pay a withdrawal liability representing an amount based on the underfunded status of the plan. The plan is not significant to the Company’s consolidated financial statements.

Ply Gem Pension Plans — As a result of the Merger on November 16, 2018, we assumed the Ply Gem Group Pension Plan (the “Ply Gem Plan”) and the MW Manufacturers, Inc Retirement Plan (the “MW Plan”). The Ply Gem Plan was frozen during 1998, and no further increases in benefits for participants may occur as a result of increases in service years or compensation. The MW Plan was frozen for salaried participants during 2004 and non-salaried participants during 2005. No additional participants may enter the plan, but increases in benefits for participants as a result of increase in service years or compensation will occur.

We refer to the RCC Pension Plan, the CENTRIA Benefit Plans, the Ply Gem Plan and the MW Plan collectively as the “Defined Benefit Plans” in this Note.

The following table sets forth the components of the net periodic benefit cost, before tax, and funding contributions, for the periods indicated (in thousands):

	Three Months Ended September 28, 2019						Three Months Ended July 29, 2018
	Defined Benefit Plans		OPEB Plans		Total		Defined Benefit Plans		OPEB Plans		Total
Service cost	$	11	$	6	$	17	$	22	$	7	$	29
Interest cost	974		66		1,040		494		62		556
Expected return on assets	(1,234)		—		(1,234)		(729)		—		(729)
Amortization of prior service cost	15		—		15		15		—		15
Amortization of net actuarial loss	704		—		704		248		—		248
Net periodic benefit cost	$	470	$	72	$	542	$	50	$	69	$	119
	Nine Months Ended September 28, 2019						Nine Months Ended July 29, 2018
	Defined Benefit Plans		OPEB Plans		Total		Defined Benefit Plans		OPEB Plans		Total
Service cost	$	32	$	17	$	49	$	65	$	21	$	86
Interest cost	2,922		197		3,119		1,481		185		1,666
Expected return on assets	(3,701)		—		(3,701)		(2,187)		—		(2,187)
Amortization of prior service cost	43		—		43		43		—		43
Amortization of net actuarial loss	2,112		—		2,112		743		—		743
Net periodic benefit cost	$	1,408	$	214	$	1,622	$	145	$	206	$	351

We expect to contribute $2.3 million to the Defined Benefit Plans in the year ending December 31, 2019. Our policy is to fund the CENTRIA Benefit Plans as required by minimum funding standards of the Internal Revenue Code. The contributions to the OPEB Plans by retirees vary from none to 25% of the total premiums paid.

XML

GOODWILL

9 Months Ended

Sep. 28, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL

GOODWILL

The Company’s goodwill balance and changes in the carrying amount of goodwill by segment follows (in thousands):

	Commercial		Siding		Windows		Total
Balance, October 28, 2018	$	148,291	$	—	$	—	$	148,291
Goodwill recognized from Merger	—		854,606		639,447		1,494,053
Currency translation	—		(1,220)		(913)		(2,133)
Balance, December 31, 2018	$	148,291	$	853,386	$	638,534	$	1,640,211
Goodwill recognized from Environmental Stoneworks Acquisition	—		60,487		—		60,487
Currency translation	—		985		736		1,721
Purchase accounting adjustments	—		(14,009)		(10,481)		(24,490)
Balance, September 28, 2019	$	148,291	$	900,849	$	628,789	$	1,677,929

XML

LEASES

9 Months Ended

Sep. 28, 2019

Leases [Abstract]

LEASES

LEASES

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases, applying the standard to leases existing at the effective date. For arrangements entered into following the transition date, applicability of the standard is determined at inception.

The Company leases certain manufacturing, warehouse and distribution locations, vehicles and equipment, including fleet vehicles. Many of these leases have options to terminate prior to or extend beyond the end of the term. The exercise of the majority of lease renewal options is at the Company’s sole discretion. Some lease agreements have variable payments, the majority of these are real estate agreements in which future increases in rent are based on an index. Lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating lease liabilities are recognized based on the present value of the future minimum lease payments over the reasonably expected holding period at commencement date. Few of the Company’s lease contracts provide a readily determinable implicit rate. For these contracts, an estimated incremental borrowing rate (“IBR”) is utilized, based on information available at the inception of the lease. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease.

Weighted average information about the Company’s lease portfolio as of September 28, 2019 was as follows:

Weighted-average remaining lease term	5.6 years
Weighted-average IBR	6.08	%

Operating lease costs for the three and nine months ended September 28, 2019 were as follows (in thousands):

	Three Months Ended		Nine Months Ended
	September 28, 2019		September 28, 2019
Operating lease costs
Fixed lease costs	$	23,903	$	77,125
Variable lease costs(1)	8,654		27,868
(1) Includes short-term lease costs, which are immaterial.

Cash and non-cash activities for the three and nine months ended September 28, 2019 were as follows (in thousands):

	Three Months Ended		Nine Months Ended
	September 28, 2019		September 28, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	23,463	$	66,936
Right-of-use assets obtained in exchange for new operating lease liabilities	$	47,236	$	372,269

Future minimum lease payments under non-cancelable leases as of September 28, 2019 were as follows (in thousands):

	Operating Leases
2019 (excluding the nine months ended September 28, 2019)	$	23,640
2020	86,617
2021	76,607
2022	61,548
2023	34,935
Thereafter	119,393
Total future minimum lease payments	402,740
Less: interest	90,123
Present value of future minimum lease payments	$	312,617
As of September 28, 2019
Current portion of lease liabilities	$	68,993
Long-term portion of lease liabilities	243,624
Total	$	312,617

XML

LEASES - Schedule of Future Minimum Lease Payments (Details) - USD ($) $ in Thousands	Sep. 28, 2019	Jan. 01, 2019
Leases [Abstract]
2019 (excluding the nine months ended September 28, 2019)	$ 23,640
2020	86,617
2021	76,607
2022	61,548
2023	34,935
Thereafter	119,393
Total future minimum lease payments	402,740
Less: interest	90,123
Present value of future minimum lease payments	312,617	$ 304,100
Current portion of lease liabilities	68,993
Long-term portion of lease liabilities	$ 243,624

XML

DEFINED BENEFIT PLANS - Narrative (Details)	9 Months Ended
	Sep. 28, 2019 USD ($)
Defined Benefit Plans
Defined Benefit Plan Disclosure [Line Items]
Defined benefit plan, expected contribution amount	$ 2,300,000
Other Postretirement Benefit Plan
Defined Benefit Plan Disclosure [Line Items]
Defined benefit plan, minimum annual contribution, percent	0.00%
Defined contribution plan, maximum annual contributions per employee, percent	25.00%
The Steelworkers Pension Trust | CENTRIA Benefit Plan | Multiemployer Plans, Pension
Defined Benefit Plan Disclosure [Line Items]
Multiemployer plans, minimum contribution	$ 300,000

XML

ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Sep. 28, 2019

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

ACCOUNTING PRONOUNCMENTS

ACCOUNTING PRONOUNCEMENTS

Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, to increase transparency and comparability among organizations by recognizing right-of-use assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. Effective January 1, 2019, the Company adopted the guidance initially applying the standard to leases existing at, or entered into after, the January 1, 2019 adoption date. The Company has elected only the package of three transition practical expedients available under the new standard. The short-term lease recognition exemption has been elected for all leases that qualify as well as the practical expedient to not separate lease and non-lease components for all leases other than leases of durable tooling.

The adoption of the new standard resulted in the recognition of additional operating liabilities of $304.1 million with corresponding right-of-use (“ROU”) assets of $304.1 million, based on the present value of the remaining minimum rental payments. The Company recognized no adjustment to opening balance of accumulated deficit as of January 1, 2019. The new standard also provides for practical expedients for an entity’s ongoing accounting. Additional disclosures on leases are included in Note 8 — Leases.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software—General (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. Effective January 1, 2019, the Company early adopted this guidance on a prospective basis. The application of ASU 2018-15 did not have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) as subsequently amended. ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We performed an assessment of the differences between the new revenue standard and current accounting practices. As part of our implementation process, we identified significant revenue streams and evaluated a sample of contracts within each significant revenue stream in order to determine the effect of the standard on our revenue recognition practices. We completed this evaluation and have established new policies, procedures, and internal controls in our adoption of the new revenue standard. We adopted this guidance on a modified retrospective basis, pursuant to which we recorded a $2.6 million adjustment to increase the opening balance of accumulated deficit as of October 29, 2018 (the first day of the Transition Period) for the impact of applying the new revenue standard. The adjustment related to changes in the timing of revenue recognition for our weathertightness warranties in our Commercial segment. Additional disaggregated revenue disclosures are included in Note 1 — Summary of Significant Accounting Policies.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on eight cash flow classification issues with the objective of reducing differences in practice. We adopted this guidance on a retrospective basis in the Transition Period. The application of ASU 2016-15 did not have a material impact on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. We adopted this guidance on a modified retrospective basis, pursuant to which we recorded a $0.7 million adjustment to increase the opening balance of accumulated deficit as of October 29, 2018 (the first day of the Transition Period) for the impact of applying the new standard.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), which clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. Entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. An entity with a material balance of restricted cash and restricted cash equivalents must disclose information about the nature of the restrictions. We adopted this guidance on a retrospective basis in the Transition Period. The adoption of this guidance resulted in restricted cash activity previously included in financing activities on our consolidated statement of cash flows to be included as part of the beginning and ending balances of cash and cash equivalents and restricted cash in our consolidated statements of cash flows.

In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends the requirements related to the income statement presentation of the components of net periodic benefit cost for employer sponsored defined benefit pension and other postretirement benefit plans. Under the new guidance, an entity must disaggregate and present the service cost component of net periodic benefit cost in the same income statement line items as other employee compensation costs arising from services rendered during the period, and only the service cost component will be eligible for capitalization. Other components of net periodic benefit cost will be presented separately from the line items that include the service cost. We adopted this guidance in the Transition Period on a retrospective basis to adopt the requirement for separate presentation of the income statement service cost and other components, and on a prospective transition method to adopt the requirement to limit the capitalization of benefit cost to the service component. The adoption of ASU 2017-07 did not have a material impact on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides clarity on the accounting for modifications of stock-based awards. The Company adopted this guidance on a prospective basis in the Transition Period for share-based payment awards modified on or after the adoption date. The adoption of ASU 2017-09 did not have a material impact on our consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. This ASU’s objectives are to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities; and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. ASU No. 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018. The Company adopted this guidance on a prospective basis for fiscal 2019. The adoption of ASU 2017-12 did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires an entity to measure all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now incorporate forward-looking information based on expected losses to estimate credit losses. ASU 2016-13 will be effective for our fiscal year ending December 31, 2020, including interim periods within that fiscal year. We are evaluating the impact that the adoption of this ASU will have on our consolidated financial position, result of operations and cash flows.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies disclosure requirements for fair value measurements under ASC 820, Fair Value Measurement. We will be required to adopt this guidance retrospectively in the annual and interim periods for our fiscal year ending December 31, 2020, with early adoption permitted. We are evaluating the impact of adopting this guidance.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which removes disclosures no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. We will be required to adopt this guidance for our fiscal year ending December 31, 2020, with early adoption permitted. Certain provisions are applied prospectively while others are applied retrospectively. We are evaluating the impact of adopting this guidance.

Additionally, there were various other accounting standards and interpretations issued that the Company has not yet been required to adopt, none of which is expected to have a material impact on the Company’s consolidated financial statements going forward.

XML

Cover - shares	9 Months Ended
	Sep. 28, 2019	Oct. 31, 2019
Cover page.
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 28, 2019
Document Transition Report	false
Entity File Number	1-14315
Entity Registrant Name	Cornerstone Building Brands, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	76-0127701
Entity Address, Address Line One	5020 Weston Parkway
Entity Address, Address Line Two	Suite 400
Entity Address, City or Town	Cary
Entity Address, State or Province	NC
Entity Address, Postal Zip Code	27513
City Area Code	888
Local Phone Number	975-9436
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Title of 12(b) Security	Common Stock $0.01 par value per share
Trading Symbol	CNR
Security Exchange Name	NYSE
Entity Common Stock, Shares Outstanding		125,566,409
Entity Central Index Key	0000883902
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 28, 2019	Oct. 28, 2018
Statement of Financial Position [Abstract]
Allowance for doubtful accounts receivable	$ 9,948	$ 6,249
Accumulated depreciation on property, plant and equipment	$ 530,490	$ 459,931
Common stock, par value (in USD per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	200,000,000	100,000,000
Common stock shares issued (in shares)	125,621,510	66,264,654
Common stock, shares outstanding (in shares)	125,566,409	66,203,841
Treasury stock, shares (in shares)	55,101	60,813

XML

DEFINED BENEFIT PLANS (Tables)

9 Months Ended

Sep. 28, 2019

Retirement Benefits [Abstract]

Schedule of Accumulated and Projected Benefit Obligations

The following table sets forth the components of the net periodic benefit cost, before tax, and funding contributions, for the periods indicated (in thousands):

	Three Months Ended September 28, 2019						Three Months Ended July 29, 2018
	Defined Benefit Plans		OPEB Plans		Total		Defined Benefit Plans		OPEB Plans		Total
Service cost	$	11	$	6	$	17	$	22	$	7	$	29
Interest cost	974		66		1,040		494		62		556
Expected return on assets	(1,234)		—		(1,234)		(729)		—		(729)
Amortization of prior service cost	15		—		15		15		—		15
Amortization of net actuarial loss	704		—		704		248		—		248
Net periodic benefit cost	$	470	$	72	$	542	$	50	$	69	$	119
	Nine Months Ended September 28, 2019						Nine Months Ended July 29, 2018
	Defined Benefit Plans		OPEB Plans		Total		Defined Benefit Plans		OPEB Plans		Total
Service cost	$	32	$	17	$	49	$	65	$	21	$	86
Interest cost	2,922		197		3,119		1,481		185		1,666
Expected return on assets	(3,701)		—		(3,701)		(2,187)		—		(2,187)
Amortization of prior service cost	43		—		43		43		—		43
Amortization of net actuarial loss	2,112		—		2,112		743		—		743
Net periodic benefit cost	$	1,408	$	214	$	1,622	$	145	$	206	$	351

XML

Intangible Assets, Goodwill and Other (Tables)

9 Months Ended

Sep. 28, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

ASSETS HELD FOR SALE

ASSETS HELD FOR SALE

We record assets held for sale at the lower of the carrying value or fair value less costs to sell. The following criteria are used to determine if property is held for sale: (i) management has the authority and commits to a plan to sell the property; (ii) the property is available for immediate sale in its present condition; (iii) there is an active program to locate a buyer and the plan to sell the property has been initiated; (iv) the sale of the property is probable within one year; (v) the property is being actively marketed at a reasonable sale price relative to its current fair value; and (vi) it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made.

In determining the fair value of the assets less cost to sell, we consider factors including current sales prices for comparable assets in the area, recent market analysis studies, appraisals and any recent legitimate offers. If the estimated fair value less cost to sell of an asset is less than its current carrying value, the asset is written down to its estimated fair value less cost to sell. The total carrying value of assets held for sale was $5.0 million and $7.3 million as of September 28, 2019 and October 28, 2018, respectively. All of these assets continued to be actively marketed for sale or were under contract as of September 28, 2019.

During the nine months ended September 28, 2019 the Company determined an alternative use for a facility in the Commercial segment that had previously been classified as held for sale and reclassified the net book value of $1.7 million to property, plant and equipment and recorded an immaterial depreciation adjustment. Additionally, during the nine months ended September 28, 2019, the Company closed on the sale of an idled facility in the Commercial segment which had previously been classified as held for sale. In connection with the sale we received net proceeds of $0.9 million and recognized a net gain of $0.3 million, which is included in restructuring and impairment charges, net, in the consolidated statements of operations for the nine months ended September 28, 2019.

Due to uncertainties in the estimation process, actual results could differ from the estimates used in our historical analysis. Our assumptions about property sales prices require significant judgment because the current market is highly sensitive to changes in economic conditions. We determined the estimated fair values of assets held for sale based on current market conditions and assumptions made by management, which may differ from actual results and may result in impairments if market conditions deteriorate. Certain assets held for sale are valued at fair value and are measured at fair value on a nonrecurring basis. Assets held for sale are reported at fair value, if, on an individual basis, the fair value of the asset is less than carrying value. The fair value of assets held for sale is estimated using Level 3 inputs, such as broker quotes for like-kind assets or other market indications of a potential selling value that approximates fair value. Assets held for sale, reported at fair value, less costs to sell, totaled $5.0 million as of September 28, 2019.

XML

ACQUISITIONS

9 Months Ended

Sep. 28, 2019

Business Combinations [Abstract]

ACQUISITIONS

ACQUISITIONS

Environmental Stoneworks

On January 12, 2019, the Company entered into a Unit Purchase Agreement (the “Purchase Agreement”) with Environmental Materials, LLC, a Delaware limited liability company (“Environmental Stoneworks” or “ESW”), the Members of Environmental Materials, LLC (the “Sellers”) and Charles P. Gallagher and Wayne C. Kocourek, solely in their capacity as the Seller Representative (as defined in the Purchase Agreement), pursuant to which, on February 20, 2019, the Company’s wholly-owned subsidiary, Ply Gem Industries, Inc., purchased from the Sellers 100% of the outstanding limited liability company interests of Environmental Stoneworks (the “Environmental Stoneworks Acquisition”) for total consideration of $182.6 million, subject to certain post-closing adjustments, for Environmental Stoneworks. The transaction was financed through borrowings under the Company’s asset-based revolving credit facility.

The Environmental Stoneworks Acquisition, when combined with the Company’s existing stone businesses, positions the Company as a market leader in stone veneer. The Company accounted for the transaction as an acquisition in accordance with the provisions of Accounting Standards Codification 805, Business Combinations, which results in a new valuation for the assets and liabilities of Environmental Stoneworks based upon fair values as of the closing date.

The Company determined the fair value of the tangible and intangible assets and the liabilities acquired, and recorded goodwill based on the excess of fair value of the acquisition consideration over such fair values, as follows (in thousands):

Assets acquired:
Restricted cash	$	3,379
Accounts receivable	17,134
Inventories	13,062
Prepaid expenses and other current assets	3,677
Property, plant and equipment	14,295
Lease right of use assets	11,372
Intangible assets (trade names/customer relationships)	91,170
Goodwill	60,487
Other assets	157
Total assets acquired	214,733
Liabilities assumed:
Accounts payable	5,910
Other accrued expenses	11,445
Lease liabilities	11,365
Other long-term liabilities	3,450
Total liabilities assumed	32,170
Net assets acquired	$	182,563

The $60.5 million of goodwill was allocated to the Siding segment and none of the goodwill is expected to be deductible for tax purposes. The goodwill is attributable to the workforce of the acquired business and the synergies expected to be realized.

During the nine months ended September 28, 2019, the Company incurred $1.5 million of acquisition-related costs for Environmental Stoneworks, which are recorded in strategic development and acquisition related costs in the Company’s consolidated statements of operations. There were no significant acquisition-related costs incurred during the three months ended September 28, 2019.

The final acquisition accounting allocation for the Environmental Stoneworks Acquisition remains subject to further adjustments. The specific accounts subject to ongoing acquisition accounting adjustments include accounts receivable, inventories, prepaid expenses and other current assets, goodwill, intangibles, accounts payable, accrued expenses, accrued warranties and other liabilities. Therefore, the measurement period remained open as of September 28, 2019, and the preliminary acquisition accounting allocation detailed above is subject to further adjustment. The Company anticipates completing these acquisition accounting adjustments during the fourth quarter of fiscal 2019.

Ply Gem Merger

On July 17, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ply Gem Parent, LLC (“Ply Gem”), and for certain limited purposes as set forth in the Merger Agreement, Clayton, Dubilier & Rice, LLC (“CD&R”), pursuant to which, at the closing of the merger, Ply Gem would be merged with and into NCI, with NCI continuing its existence as a corporation organized under the laws of the State of Delaware (the “Merger”). On November 15, 2018, at a special meeting of NCI shareholders, NCI’s shareholders approved, among other items, the Merger Agreement and the issuance in the Merger of 58,709,067 shares of NCI common stock, par value $0.01 per share (“NCI Common Stock”) in the aggregate, on a pro rata basis, to the holders of all of the equity interests in Ply Gem (the “Stock Issuance”), representing approximately 47% of the total number of shares of NCI Common Stock outstanding following the consummation of the Merger on November 16, 2018 (the “Closing Date”). The total value of shares of NCI Common Stock issued pursuant to the Stock Issuance was approximately $713.9 million based on the number of shares issued multiplied by the NCI Common Stock closing share price of $12.16 on the Closing Date. There are approximately 57,103 shares of NCI Common Stock of the original 58,709,067 that have not yet been issued pending holder identification and have been accrued as purchase consideration within other current liabilities in the consolidated balance sheet at September 28, 2019. For accounting and legal purposes, NCI was the accounting and legal acquirer of Ply Gem as of the Closing Date and Ply Gem’s results have been included within NCI from the Closing Date.

Ply Gem is a leading manufacturer of exterior building products in North America, operating in two segments: Siding and Windows. These two segments produce a comprehensive product line of vinyl siding, designer accents, cellular PVC trim, vinyl fencing, vinyl railing, stone veneer, and vinyl windows and doors used in both the new construction market and the home repair and remodeling market in the United States and Canada. Vinyl building products have the leading share of sales volume in siding and windows in the United States. Ply Gem also manufactures vinyl and aluminum soffit and siding accessories, aluminum trim coil, wood windows, aluminum windows, vinyl and aluminum-clad windows and steel and fiberglass doors, enabling us to bundle complementary and color-matched products and accessories with our core products.

Ply Gem strategically fits into NCI’s existing footprint and broadens its service offering to existing and new customers within the building products industry. The Company accounted for the Merger as an acquisition in accordance with the provisions of Accounting Standards Codification 805, Business Combinations, which results in a new valuation for the assets and liabilities of Ply Gem based upon fair values as of the Closing Date.

In connection with the Merger, on November 16, 2018, NCI assumed (i) the obligations of the company formerly known as Ply Gem Midco, Inc. (“Ply Gem Midco”), a subsidiary of Ply Gem immediately prior to the consummation of the Merger, as borrower under the Current Cash Flow Credit Agreement (as defined below), (ii) the obligations of Ply Gem Midco as parent borrower under the Current ABL Credit Agreement (as defined below) and (iii) the obligations of Ply Gem Midco as issuer under the Current Indenture (as defined below).

On April 12, 2018, Ply Gem Midco entered into a Cash Flow Credit Agreement (the “Current Cash Flow Credit Agreement”), by and among Ply Gem Midco, JP Morgan Chase Bank, N.A., as administrative agent and collateral agent (the “Cash Flow Agent”), and the several banks and other financial institutions from time to time party thereto. As of November 16, 2018, immediately prior to consummation of the Merger, the Current Cash Flow Credit Agreement provided for (i) a term loan facility (the “Current Term Loan Facility”) in an original aggregate principal amount of $1,755.0 million and (ii) a cash flow-based revolving credit facility (the “Current Cash Flow Revolver” and together with the Current Term Loan Facility, the “Current Cash Flow Facilities”) of up to $115.0 million. On November 16, 2018, Ply Gem Midco entered into a Lender Joinder Agreement, by and among Ply Gem Midco, the additional commitment lender party thereto and the Cash Flow Agent, which amended the Current Cash Flow Credit Agreement in order to, among other things, increase the aggregate principal amount of the Current Term Loan Facility by $805.0 million (the “Incremental Term Loans”). Proceeds of the Incremental Term Loans were used to, among other things, (a) finance the Merger and to pay certain fees, premiums and expenses incurred in connection therewith, (b) repay in full amounts outstanding under the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement (each as defined below) and (c) repay $325.0 million of borrowings outstanding under the Current ABL Facility (as defined below). On November 16, 2018, in connection with the consummation of the Merger, NCI and Ply Gem Midco entered into a joinder agreement with respect to the Current Cash Flow Facilities, and NCI became the Borrower (as defined in the Current Cash Flow Credit Agreement) under the Current Cash Flow Facilities. The Current Term Loan Facility amortizes in nominal quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum, with the remaining balance payable upon final maturity of the Current Term Loan Facility on April 12, 2025. There are no amortization payments under the Current Cash Flow Revolver, and all borrowings under the Current Cash Flow Revolver mature on April 12, 2023. At November 16, 2018, following consummation of the Merger, there was $2,555.6 million outstanding under the Current Term Loan Facility and there were no amounts drawn on the Current Cash Flow Revolver.

On April 12, 2018, Ply Gem Midco and certain subsidiaries of Ply Gem Midco entered into an ABL Credit Agreement (the “Current ABL Credit Agreement”), by and among Ply Gem Midco, the subsidiary borrowers from time to time party thereto, UBS AG, Stamford Branch, as administrative agent and collateral agent (the “ABL Agent”), and the several banks and other financial institutions from time to time party thereto, which provided for an asset-based revolving credit facility (the “Current ABL Facility”) of up to $360.0 million, consisting of (i) $285.0 million available to U.S. borrowers (subject to U.S. borrowing base availability) (the “ABL U.S. Facility”) and (ii) $75.0 million available to both U.S. borrowers and Canadian borrowers (subject to U.S. borrowing base and Canadian borrowing base availability) (the “ABL Canadian Facility”). On October 15, 2018, Ply Gem Midco entered into Amendment No. 2 to the Current ABL Credit Agreement, by and among Ply Gem Midco, the incremental lender party thereto and the ABL Agent, which amended the Current ABL Credit Agreement in order to, among other things, increase the aggregate commitments under the Current ABL Facility by $36.0 million to $396.0 million overall, and with the (x) ABL U.S. Facility being increased from $285.0 million to $313.5 million and (y) the ABL Canadian Facility being increased from $75.0 million to $82.5 million. On November 16, 2018, Ply Gem Midco entered into Amendment No. 4 to the Current ABL Credit Agreement, by and among Ply Gem Midco, the incremental lenders party thereto and the ABL Agent, which amended the Current ABL Credit Agreement in order to, among other things, increase the aggregate commitments under the Current ABL Facility by $215.0 million (the “Incremental ABL Commitments”) to $611.0 million overall, and with the (x) ABL U.S. Facility being increased from $313.5 million to approximately $483.7 million and (y) the ABL Canadian Facility being increased from $82.5 million to approximately $127.3 million. On November 16, 2018, in connection with the consummation of the Merger, NCI and Ply Gem Midco entered into a joinder agreement with respect to the Current ABL Facility, and NCI became the Parent Borrower (as defined in the Current ABL Credit Agreement) under the Current ABL Facility. The Company and, at the Company’s option, certain of the Company’s subsidiaries are the borrowers under the Current ABL Facility. As of November 16, 2018, and following consummation of the Merger, (a) Ply Gem Industries, Inc., Atrium Windows and Doors, Inc., NCI Group, Inc. and Robertson-Ceco II Corporation were U.S. subsidiary borrowers under the Current ABL Facility, and (b) Gienow Canada Inc., Mitten Inc., North Star Manufacturing (London) Ltd. and Robertson Building Systems Limited were Canadian borrowers under the Current ABL Facility. All borrowings under the Current ABL Facility mature on April 12, 2023. At November 16, 2018, following consummation of the Merger, there were no amounts drawn and $24.7 million of letters of credit issued under the Current ABL Facility.

On April 12, 2018, Ply Gem Midco issued $645.0 million aggregate principal amount of 8.00% Senior Notes due 2026 (the “8.00% Senior Notes”). The 8.00% Senior Notes were issued pursuant to an Indenture, dated as of April 12, 2018 (as supplemented from time to time, the “Current Indenture”), by and among Ply Gem Midco, as issuer, the subsidiary guarantors from time to time party thereto and Wilmington Trust, National Association, as trustee. On November 16, 2018, in connection with the consummation of the Merger, the Company entered into a supplemental indenture and assumed the obligations of Ply Gem Midco as issuer under the Current Indenture and the 8.00% Senior Notes. The 8.00% Senior Notes bear interest at 8.00% per annum and will mature on April 15, 2026. Interest is payable semi-annually in arrears on April 15 and October 15.

On November 16, 2018, in connection with the incurrence by Ply Gem Midco of the Incremental Term Loans and the obtaining by Ply Gem Midco of the Incremental ABL Commitments, following consummation of the Merger, the Company (a) terminated all outstanding commitments and repaid all outstanding amounts under the Term Loan Credit Agreement, dated as of February 8, 2018 (the “Pre-merger Term Loan Credit Agreement”), by and among the Company, as borrower, the several banks and other financial institutions from time to time party thereto and Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and (b) terminated all outstanding commitments and repaid all outstanding amounts under the ABL Credit Agreement, dated as of February 8, 2018 (the “Pre-merger ABL Credit Agreement”), by and among NCI Group, Inc. and Robertson-Ceco II Corporation, as borrowers, the Company, as a guarantor, the other borrowers from time to time party thereto, the several banks and other financial institutions from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent and collateral agent. Outstanding letters of credit under the Pre-merger ABL Credit Agreement were cash collateralized.

In connection with the termination and repayment of the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement, the Company also terminated (i) the Term Loan Guarantee and Collateral Agreement, dated as of February 8, 2018, made by the Company and certain of its subsidiaries, in favor of Credit Suisse AG, Cayman Islands Branch, as collateral agent, (ii) the ABL Guarantee and Collateral Agreement, dated as of February 8, 2018, made by the Company and certain of its subsidiaries, in favor of Wells Fargo Bank, National Association, as collateral agent, and (iii) the Intercreditor Agreement, dated as of February 8, 2018, between Credit Suisse AG, Cayman Islands Branch and Wells Fargo Bank, National Association, and acknowledged by the Company and certain of its subsidiaries.

Purchase Price Allocation

The Company’s total purchase consideration in the Merger was equal to $728.9 million and is comprised of the Stock Issuance of $713.9 million and a cash payment of $15.0 million by the Company to settle certain third-party fees and expenses incurred by Ply Gem. The Company determined the fair values of the tangible and intangible assets acquired and the liabilities assumed in the Merger, and recorded goodwill based on the excess of fair value of the acquisition consideration over such fair values, as follows (in thousands):

Assets acquired:
Cash	$	102,121
Accounts receivable	345,801
Inventories	301,513
Prepaid expenses and other current assets	51,223
Property, plant and equipment	364,981
Intangible assets (trade names/customer relationships)	1,720,000
Goodwill	1,469,563
Other assets	3,262
Total assets acquired	4,358,464
Liabilities assumed:
Accounts payable	139,955
Tax receivable agreement liability	47,355
Other accrued expenses (inclusive of $25.3 million for current warranty liabilities)	246,341
Debt (inclusive of current portion)	2,674,767
Other long-term liabilities ($163.6 million for accrued long-term warranty)	163,561
Deferred income taxes	325,593
Other long-term liabilities	31,947
Total liabilities assumed	3,629,519
Net assets acquired	$	728,945

At the acquisition date, $840.6 million of goodwill allocated to the Siding segment and $629.0 million allocated to the Windows segment and none of the goodwill is expected to be deductible for tax purposes. The goodwill is attributable to the workforce of the acquired business and the synergies expected to be realized.

The final acquisition accounting allocation for the Merger remains subject to further adjustments. The specific accounts subject to ongoing acquisition accounting adjustments include various income tax assets and liabilities, accounts receivable, inventories, goodwill, intangibles, accrued expenses, accrued warranties and other liabilities. Therefore, the measurement period remained open as of September 28, 2019, and the preliminary acquisition accounting allocation detailed above is subject to further adjustment. The Company anticipates completing these acquisition accounting adjustments during the fourth quarter of fiscal 2019.

Unaudited Pro Forma Financial Information

During the three and nine months ended September 28, 2019, Environmental Stoneworks contributed net sales of $45.4 million and $108.2 million, respectively, and net income of $2.8 million and $5.8 million, respectively, which has been included within the Company’s consolidated statement of operations. The following table provides unaudited supplemental pro forma results for Cornerstone, prepared in accordance with ASC 805, for the three and nine months ended September 28, 2019 and July 29, 2018 as if the Environmental Stoneworks and Ply Gem (disclosed below) acquisitions had occurred on October 30, 2017 (beginning of the nine months ended July 29, 2018) (in thousands except for per share data):

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Net sales	$	1,285,043	$	1,381,820	$	3,661,428	$	3,668,062
Net income (loss) applicable to common shares	28,456		(56,165)		10,532		(221,019)
Net income (loss) per common share:
Basic	$	0.23	$	(0.45)	$	0.08	$	(1.76)
Diluted	$	0.23	$	(0.45)	$	0.08	$	(1.76)

The unaudited supplemental pro forma financial information was prepared based on the historical information of Cornerstone, Ply Gem and Environmental Stoneworks. Material pro forma adjustments related to the Environmental Stoneworks and Ply Gem acquisitions include approximately $70.3 million of certain acquisition and compensation costs and $37.9 million of non-cash charges of purchase price allocated to inventories, which were reflected in the pro forma results as if they were incurred on October 30, 2017. Other material pro forma adjustments include adjustments to depreciation and amortization expense and interest expense related to the Environmental Stoneworks and Ply Gem acquisitions.

The unaudited supplemental pro forma financial information does not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the two acquisitions or any integration costs. Unaudited pro forma balances are not necessarily indicative of operating results had the Environmental Stoneworks and Ply Gem acquisitions occurred on October 30, 2017 or of future results.

XML

ASSETS HELD FOR SALE

9 Months Ended

Sep. 28, 2019

Discontinued Operations and Disposal Groups [Abstract]

ASSETS HELD FOR SALE

ASSETS HELD FOR SALE

We record assets held for sale at the lower of the carrying value or fair value less costs to sell. The following criteria are used to determine if property is held for sale: (i) management has the authority and commits to a plan to sell the property; (ii) the property is available for immediate sale in its present condition; (iii) there is an active program to locate a buyer and the plan to sell the property has been initiated; (iv) the sale of the property is probable within one year; (v) the property is being actively marketed at a reasonable sale price relative to its current fair value; and (vi) it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made.

In determining the fair value of the assets less cost to sell, we consider factors including current sales prices for comparable assets in the area, recent market analysis studies, appraisals and any recent legitimate offers. If the estimated fair value less cost to sell of an asset is less than its current carrying value, the asset is written down to its estimated fair value less cost to sell. The total carrying value of assets held for sale was $5.0 million and $7.3 million as of September 28, 2019 and October 28, 2018, respectively. All of these assets continued to be actively marketed for sale or were under contract as of September 28, 2019.

During the nine months ended September 28, 2019 the Company determined an alternative use for a facility in the Commercial segment that had previously been classified as held for sale and reclassified the net book value of $1.7 million to property, plant and equipment and recorded an immaterial depreciation adjustment. Additionally, during the nine months ended September 28, 2019, the Company closed on the sale of an idled facility in the Commercial segment which had previously been classified as held for sale. In connection with the sale we received net proceeds of $0.9 million and recognized a net gain of $0.3 million, which is included in restructuring and impairment charges, net, in the consolidated statements of operations for the nine months ended September 28, 2019.

Due to uncertainties in the estimation process, actual results could differ from the estimates used in our historical analysis. Our assumptions about property sales prices require significant judgment because the current market is highly sensitive to changes in economic conditions. We determined the estimated fair values of assets held for sale based on current market conditions and assumptions made by management, which may differ from actual results and may result in impairments if market conditions deteriorate. Certain assets held for sale are valued at fair value and are measured at fair value on a nonrecurring basis. Assets held for sale are reported at fair value, if, on an individual basis, the fair value of the asset is less than carrying value. The fair value of assets held for sale is estimated using Level 3 inputs, such as broker quotes for like-kind assets or other market indications of a potential selling value that approximates fair value. Assets held for sale, reported at fair value, less costs to sell, totaled $5.0 million as of September 28, 2019.

XML

WARRANTY

9 Months Ended

Sep. 28, 2019

Product Warranties Disclosures [Abstract]

WARRANTY

WARRANTYThe Company sells a number of products and offers a number of warranties. The specific terms and conditions of these warranties vary depending on the product sold. Upon the sale of a weathertightness warranty, we record the resulting revenue as deferred revenue, which is included in other accrued expenses and other long-term liabilities on our consolidated balance sheets depending on when the revenues are expected to be recognized. Factors that affect the Company’s warranty liabilities include the number of units sold, historical and anticipated rates of warranty claims, cost per claim and new product introduction. The Company assesses the adequacy of the recorded warranty claims and adjusts the amounts as necessary.

The following table represents the rollforward of our accrued warranty obligation and deferred warranty revenue activity for the nine months ended September 28, 2019 and July 29, 2018 (in thousands):

	Nine Months Ended
	September 28, 2019		July 29, 2018
Beginning balance	$	134,515	$	32,418
Purchase accounting adjustments	84,280		—
Warranties sold	2,313		2,616
Revenue recognized	(2,075)		(1,971)
Expense	22,006		—
Settlements	(22,285)		(1,654)
Ending balance	218,754		31,409
Less: current portion	31,294		5,970
Total, less current portion	$	187,460	$	25,439

The Company records the current warranty obligation within other accrued expenses and the long-term warranty obligation within other long-term liabilities within the Company’s consolidated balance sheets at September 28, 2019 and October 28, 2018.

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 28, 2019	Oct. 28, 2018
Current assets:
Cash and cash equivalents	$ 105,244,000	$ 54,272,000
Restricted cash	3,872,000	245,000
Accounts receivable, less allowances of $9,948 and $6,249, respectively	594,681,000	233,297,000
Inventories, net	467,916,000	254,531,000
Income taxes receivable	27,641,000	1,012,000
Investments in debt and equity securities, at market	3,569,000	5,285,000
Prepaid expenses and other	74,882,000	34,821,000
Assets held for sale	5,018,000	7,272,000
Total current assets	1,282,823,000	590,735,000
Property, plant and equipment, less accumulated depreciation of $530,490 and $459,931, respectively	643,844,000	236,240,000
Lease right-of-use assets	308,256,000
Goodwill	1,677,929,000	148,291,000
Intangible assets, net	1,784,937,000	127,529,000
Deferred income taxes	0	982,000
Other assets, net	10,667,000	6,598,000
Total assets	5,708,456,000	1,110,375,000
Current liabilities:
Current portion of long-term debt	25,600,000	4,150,000
Note payable	0	497,000
Payable pursuant to a tax receivable agreement	24,760,000	0
Accounts payable	235,247,000	170,663,000
Accrued compensation and benefits	84,951,000	65,136,000
Accrued interest	31,996,000	1,684,000
Accrued income taxes	18,137,000	11,685,000
Current portion of lease liabilities	68,993,000
Other accrued expenses	254,833,000	81,884,000
Total current liabilities	744,517,000	335,699,000
Long-term debt	3,267,646,000	403,076,000
Deferred income taxes	244,062,000	2,250,000
Long-term lease liabilities	243,624,000
Other long-term liabilities	280,722,000	39,085,000
Total long-term liabilities	4,036,054,000	444,411,000
Stockholders’ equity:
Common stock, $0.01 par value; 200,000,000, 125,621,510 and 125,566,409 shares authorized, issued and outstanding at September 28, 2019, respectively; and 100,000,000, 66,264,654 and 66,203,841 shares authorized, issued and outstanding at October 28, 2018, respectively	1,257,000	663,000
Additional paid-in capital	1,247,026,000	523,788,000
Accumulated deficit	(283,159,000)	(186,291,000)
Accumulated other comprehensive loss, net	(36,139,000)	(6,708,000)
Treasury stock, at cost (55,101 and 60,813 shares at September 28, 2019 and October 28, 2018, respectively)	(1,100,000)	(1,187,000)
Total stockholders’ equity	927,885,000	330,265,000
Total liabilities and stockholders’ equity	$ 5,708,456,000	$ 1,110,375,000

XML

LEASES - Summary of Cash Flow Information (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 28, 2019	Sep. 28, 2019
Leases [Abstract]
Operating cash flows from operating leases	$ 23,463	$ 66,936
Right-of-use assets obtained in exchange for new operating lease liabilities	$ 47,236	$ 372,269

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 28, 2019

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Change of Name

Effective May 23, 2019, NCI Building Systems, Inc. changed its name to Cornerstone Building Brands, Inc. (together with its subsidiaries, unless otherwise indicated, the “Company,” “Cornerstone,” “NCI”, “we,” “us” or “our”). In connection with the name change, the Company changed its NYSE trading symbol from “NCS” to “CNR”.

Basis of Presentation

The accompanying unaudited consolidated financial statements for Cornerstone Building Brands, Inc. have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, the unaudited consolidated financial statements included herein contain all adjustments, which consist of normal recurring adjustments, necessary to fairly present the Company’s financial position, results of operations and cash flows for the periods indicated. Operating results for the period from January 1, 2019 through September 28, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.

For additional information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 28, 2018 filed with the Securities and Exchange Commission (the “SEC”) on December 19, 2018.

Reporting Periods

On November 16, 2018, the Company’s Board of Directors approved a change to the Company’s fiscal year end from a 52/53 week year with the Company’s fiscal year end on the Sunday closest to October 31 to a calendar year of the twelve-month period from January 1 to December 31. The Company elected to change its fiscal year end in connection with the Merger (as defined below) to align the Company’s fiscal year end with Ply Gem’s (as defined below). As a result of this change, the Company filed a Transition Report on Form 10-Q that included the financial information for the transition period from October 29, 2018 to December 31, 2018, which period is referred to herein as the “Transition Period”. The financial statements contained herein are being filed as part of a Quarterly Report on Form 10-Q for the period from June 30, 2019 through September 28, 2019. References in this Quarterly Report on Form 10-Q to “fiscal year 2018” or “fiscal 2018” refer to the period from October 30, 2017 through October 28, 2018. The results of operations for the three and nine months ended July 29, 2018 are presented herein as the comparable period to the three and nine months ended September 28, 2019. The Company did not recast the consolidated financial statements for the period from June 30, 2018 to September 28, 2018 or January 1, 2018 to September 28, 2018 because the financial reporting processes in place at that time included certain procedures that were completed only on a quarterly basis. Consequently, to recast this period would have been impractical.

The Company’s current fiscal quarters are based on a four-four-five week calendar with periods ending on the Saturday of the last week in the quarter except that December 31st will always be the year-end date. Therefore, the financial results of certain fiscal quarters may not be comparable to prior fiscal quarters.

Change in Operating Segments

For the Transition Period, the Company began reporting results under three reportable segments: (i) Commercial; (ii) Siding; and (iii) Windows, to align with how the Company manages its business, reviews operating performance and allocates resources following the Merger. The Commercial segment will include the aggregate operating results of the Company’s legacy businesses. The Siding and Windows segments will include the operating results of the legacy Ply Gem operating segments.

Gain/Loss on Disposition of Business

During the three and nine months ended July 29, 2018, the Company recognized a $1.0 million gain related to the disposal of a non-strategic product line in the Commercial segment. In the second quarter of fiscal 2018, the Company closed on the sale of CENTRIA International LLC, which owned our China manufacturing facility. The Company recognized a $6.7 million loss on the sale, which is included in the Commercial segment financial results for the nine month period ended July 29, 2018. The disposition did not represent a strategic shift that had a major effect on the Company’s operations or financial results.

Gain on Insurance Recovery

In June 2016, the Company experienced a fire at a facility in the Commercial segment. During the third quarter of fiscal 2018, the Company received final proceeds of $4.7 million as reimbursement for new assets acquired and recognized a $4.7 million gain on insurance recovery in the consolidated statements of operations.

Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that total the amounts shown in the consolidated statements of cash flows (in thousands):

	September 28, 2019
Cash and cash equivalents	$	105,244
Restricted cash(1)	3,872
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	109,116

(1)Restricted cash at September 28, 2019 primarily relates to an escrow balance held for an outstanding earnout agreement.

Net Sales

The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), as of October 29, 2018 for the Transition Period. ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies reporting using IFRS and GAAP. The core principle of this update is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

We enter into contracts that pertain to products, which are accounted for as separate performance obligations and are typically one year or less in duration. We do not exercise significant judgment in determining the timing for the satisfaction of performance obligations or the transaction price. Revenue is measured as the amount of consideration expected to be received in exchange for our products. We have elected to apply the practical expedient provided for in ASU No. 2014-09 and have not disclosed information regarding remaining performance obligations that have original expected durations of one year or less. Revenue is generally recognized when the product has shipped from our facility and control has transferred to the customer. For a portion of our business, when we process customer owned material, control is deemed to transfer to the customer as the processing is being completed.

Our revenues are adjusted for variable consideration, which includes customer volume rebates and prompt payment discounts. We measure variable consideration by estimating expected outcomes using analysis and inputs based upon anticipated performance, historical data, and current and forecasted information. Customer returns are recorded as a reduction to sales on an actual basis throughout the year and also include an estimate at the end of each reporting period for future customer returns related to sales recorded prior to the end of the period. The Company generally estimates customer returns based upon the time lag that historically occurs between the sale date and the return date while also factoring in any new business conditions that might impact the historical analysis such as new product introduction. Measurement of variable consideration is reviewed by management periodically and revenue is adjusted accordingly. We do not have significant financing components.

Shipping and handling activities performed by us are considered activities to fulfill the sales of our products. Amounts billed for shipping and handling are included in net sales, while costs incurred for shipping and handling are included in cost of sales.

In accordance with certain contractual arrangements, we receive payment from our customers in advance related to performance obligations that are to be satisfied in the future and recognize such payments as deferred revenue, primarily related to our weathertightness warranties (see Note 11 — Warranty).

The following table presents disaggregated revenue disclosure details of net sales by segment (in thousands):

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Commercial Net Sales Disaggregation:
Metal building products	$	320,028	$	384,311	$	914,623	$	964,924
Insulated metal panels	109,322		106,605		332,403		303,910
Metal coil coating	35,556		57,609		123,126		158,109
Total	$	464,906	$	548,525	$	1,370,152	$	1,426,943
Siding Net Sales Disaggregation:
Vinyl siding	$	148,912	$	—	$	400,220	$	—
Metal	75,933		—		199,265		—
Injection molded	17,429		—		47,163		—
Stone	32,254		—		70,441		—
Other products & services	41,271		—		123,512		—
Total	$	315,799	$	—	$	840,601	$	—
Windows Net Sales Disaggregation:
Vinyl windows	$	481,104	$	—	$	1,355,333	$	—
Aluminum windows	11,951		—		39,678		—
Other	11,283		—		39,568		—
Total	$	504,338	$	—	$	1,434,579	$	—
Total Net Sales:	$	1,285,043	$	548,525	$	3,645,332	$	1,426,943

XML

WARRANTY (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 28, 2019	Jul. 29, 2018
Movement in Standard Product Warranty Accrual [Roll Forward]
Beginning balance	$ 134,515	$ 32,418
Purchase accounting adjustments	84,280	0
Warranties sold	2,313	2,616
Revenue recognized	(2,075)	(1,971)
Expense	22,006	0
Settlements	(22,285)	(1,654)
Ending balance	218,754	31,409
Less: current portion	31,294	5,970
Total, less current portion	$ 187,460	$ 25,439

XML

LONG-TERM DEBT AND NOTE PAYABLE - Additional Information (Details) - USD ($)					3 Months Ended		9 Months Ended
	Nov. 16, 2018	Oct. 15, 2018	Apr. 12, 2018	Feb. 08, 2018	Sep. 28, 2019	Jul. 29, 2018	Sep. 28, 2019	Jul. 29, 2018	Nov. 15, 2018	Oct. 28, 2018	Oct. 14, 2018	Jan. 16, 2015
Line of Credit Facility [Line Items]
Payment on outstanding borrowings							$ 120,000,000	$ 85,000,000
Loss on extinguishment of debt					$ 0	$ 0	0	21,875,000
Note payable					$ 0		$ 0			$ 497,000
8.25% Senior Notes Due January 2023
Line of Credit Facility [Line Items]
Debt instrument, interest rate, stated percentage				8.25%								8.25%
Debt instrument, face amount				$ 250,000,000.0								$ 250,000,000.0
Repayment of debt				265,500,000
Loss on extinguishment of debt								21,900,000
Redemption premium paid								$ 15,500,000
Term loan facility due February 2025
Line of Credit Facility [Line Items]
Term loan principal amount				415,000,000.0
Aggregate principal amount redeemed	$ 412,900,000
Repayment of debt principal, including interest	413,700,000
Installment payment as a percentage of principal			1.00%
Debt instrument, repricing premium			1.00%
Mandatory prepayment, percentage of annual excess cash flow			50.00%
Term Loan Facility due April 2025
Line of Credit Facility [Line Items]
Debt instrument, face amount	1,755,000,000.0
Increase in borrowing capacity	805,000,000.0
Debt instrument, interest rate during period							5.79%
Debt instrument, effective rate					6.51%		6.51%
Debt instrument, covenant compliance, excess cash flow, minimum			$ 10,000,000.0
Line of credit outstanding	2,555,600,000
ABL Facility
Line of Credit Facility [Line Items]
Remaining borrowing capacity on line of credit					$ 405,976,000		$ 405,976,000
Revolving loans outstanding					170,000,000		170,000,000
Line of credit outstanding					$ 30,311,000		$ 30,311,000
Weighted average interest rate on debt					3.66%		3.66%
Cash Flow Revolver
Line of Credit Facility [Line Items]
Line of credit facility, maximum borrowing capacity	$ 115,000,000.0		$ 115,000,000.0
Secured debt, percentage of capital stock held by foreign subsidiary			65.00%
Debt instrument, covenant compliance, secured leverage ratio, maximum			7.75
8.00% Senior Notes
Line of Credit Facility [Line Items]
Debt instrument, interest rate, stated percentage	8.00%		8.00%		8.00%		8.00%
Debt instrument, effective rate					8.64%		8.64%
Debt instrument, redemption price, percentage of principal amount redeemed	40.00%
ABL Facility | Revolving Credit Facility
Line of Credit Facility [Line Items]
Line of credit facility, maximum borrowing capacity	$ 611,000,000.0	$ 396,000,000.0	$ 360,000,000.0	150,000,000.0
Increase in borrowing capacity	215,000,000.0	36,000,000.0
Payment on outstanding borrowings	325,000,000.0
Fixed charge coverage ratio			1.00
Debt instrument, covenant compliance, percentage of specified availability			10.00%
Debt instrument, covenant terms, specific availability In excess of threshold of calendar days			20 days
ABL Facility | Revolving Credit Facility | ABL U.S. Facility
Line of Credit Facility [Line Items]
Line of credit facility, maximum borrowing capacity	483,700,000	313,500,000	$ 285,000,000.0						$ 313,500,000		$ 285,000,000.0
ABL Facility | Revolving Credit Facility | ABL Canadian Facility
Line of Credit Facility [Line Items]
Line of credit facility, maximum borrowing capacity	127,300,000	$ 82,500,000	$ 75,000,000.0						$ 82,500,000		$ 75,000,000.0
London Interbank Offered Rate (LIBOR) | Term Loan Facility due April 2025
Line of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate, floor			0.00%
Debt instrument, basis spread on variable rate			3.75%
London Interbank Offered Rate (LIBOR) | ABL Facility
Line of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate, floor			0.00%
London Interbank Offered Rate (LIBOR) | Cash Flow Revolver
Line of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate, floor			0.00%
Base Rate | Term Loan Facility due April 2025
Line of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate			2.75%
Minimum | London Interbank Offered Rate (LIBOR) | ABL Facility
Line of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate			1.25%
Minimum | London Interbank Offered Rate (LIBOR) | Cash Flow Revolver
Line of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate			2.50%
Minimum | Base Rate | ABL Facility
Line of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate			0.25%
Minimum | Base Rate | Cash Flow Revolver
Line of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate			1.50%
Maximum | London Interbank Offered Rate (LIBOR) | ABL Facility
Line of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate			1.75%
Maximum | London Interbank Offered Rate (LIBOR) | Cash Flow Revolver
Line of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate			3.00%
Maximum | Base Rate | ABL Facility
Line of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate			0.75%
Maximum | Base Rate | Cash Flow Revolver
Line of Credit Facility [Line Items]
Debt instrument, basis spread on variable rate			2.00%
Letter of Credit | ABL Facility
Line of Credit Facility [Line Items]
Line of credit facility, maximum borrowing capacity				30,000,000.0
Line of credit outstanding	$ 24,700,000
Swingline Borrowings | ABL Facility
Line of Credit Facility [Line Items]
Line of credit facility, maximum borrowing capacity				$ 20,000,000.0
Commitment Fee Percentage One | Minimum | ABL Facility
Line of Credit Facility [Line Items]
Unused commitment fee			0.25%
Commitment Fee Percentage One | Minimum | Cash Flow Revolver
Line of Credit Facility [Line Items]
Unused commitment fee			0.25%
Commitment Fee Percentage One | Maximum | Cash Flow Revolver
Line of Credit Facility [Line Items]
Unused commitment fee			0.50%
Debt Instrument, Redemption, Period One | 8.00% Senior Notes
Line of Credit Facility [Line Items]
Debt instrument, redemption price, percentage	100.00%
Debt Instrument, Redemption, Period Two | 8.00% Senior Notes
Line of Credit Facility [Line Items]
Debt instrument, redemption price, percentage	108.00%
Debt Instrument, Redemption, Period Three | 8.00% Senior Notes
Line of Credit Facility [Line Items]
Debt instrument, redemption price, percentage	104.00%
Debt Instrument, Redemption, Period Four | 8.00% Senior Notes
Line of Credit Facility [Line Items]
Debt instrument, redemption price, percentage	100.00%
Leverage Ratio Target Achieved | Minimum | Term loan facility due February 2025
Line of Credit Facility [Line Items]
Mandatory prepayment, percentage of annual excess cash flow			25.00%
Leverage Ratio Target Achieved | Maximum | Term loan facility due February 2025
Line of Credit Facility [Line Items]
Mandatory prepayment, percentage of annual excess cash flow			0.00%
Ply Gem | 8.00% Senior Notes
Line of Credit Facility [Line Items]
Debt instrument, face amount			$ 645,000,000.0
Ply Gem | Term Loan Facility due April 2025
Line of Credit Facility [Line Items]
Debt instrument, face amount			$ 1,755,000,000.0
Debt instrument, discount rate			0.50%
Increase in borrowing capacity	$ 805,000,000.0
Ply Gem | 8.00% Senior Notes
Line of Credit Facility [Line Items]
Debt instrument, discount rate			2.25%

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS - Fair Value by Level (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 28, 2019 USD ($)	Jul. 29, 2018 USD ($)	Sep. 28, 2019 USD ($)	Jul. 29, 2018 USD ($)	Jul. 31, 2019 USD ($)	May 31, 2019 USD ($) instrument	Oct. 28, 2018 USD ($)
Assets:
Short-term investments in deferred compensation plan	$ 3,569		$ 3,569				$ 5,285
Total assets	3,664		3,664				5,285
Liabilities:
Fair value of liabilities	42,417		42,417				4,639
Short-term investments, unrealized holding gain (loss)	(100)	$ 200	400	$ 300
Foreign Currency Hedge
Assets:
Foreign currency hedge	0		0
Liabilities:
Forward contract agreement, amount of hedge					$ 21,900
Realized gain on foreign currency hedge	100
Level 1
Assets:
Short-term investments in deferred compensation plan	3,171		3,171				4,344
Total assets	3,171		3,171				4,344
Liabilities:
Fair value of liabilities	0		0				0
Level 1 | Foreign Currency Hedge
Assets:
Foreign currency hedge	0		0
Level 2
Assets:
Short-term investments in deferred compensation plan	398		398				941
Total assets	493		493				941
Liabilities:
Fair value of liabilities	42,417		42,417				4,639
Level 2 | Foreign Currency Hedge
Assets:
Foreign currency hedge	95		95
Level 3
Assets:
Short-term investments in deferred compensation plan	0		0				0
Total assets	0		0				0
Liabilities:
Fair value of liabilities	0		0				0
Level 3 | Foreign Currency Hedge
Assets:
Foreign currency hedge	0		0
Deferred compensation plan liability
Liabilities:
Fair value of liabilities	3,564		3,564				4,639
Deferred compensation plan liability | Level 1
Liabilities:
Fair value of liabilities	0		0				0
Deferred compensation plan liability | Level 2
Liabilities:
Fair value of liabilities	3,564		3,564				4,639
Deferred compensation plan liability | Level 3
Liabilities:
Fair value of liabilities	0		0				0
Interest Rate Swap
Liabilities:
Fair value of liabilities	38,853		38,853
Interest Rate Swap | Level 1
Liabilities:
Fair value of liabilities	0		0
Interest Rate Swap | Level 2
Liabilities:
Fair value of liabilities	38,853		38,853
Interest Rate Swap | Level 3
Liabilities:
Fair value of liabilities	0		0
Money market
Assets:
Short-term investments in deferred compensation plan	27		27				369
Money market | Level 1
Assets:
Short-term investments in deferred compensation plan	27		27				369
Money market | Level 2
Assets:
Short-term investments in deferred compensation plan	0		0				0
Money market | Level 3
Assets:
Short-term investments in deferred compensation plan	0		0				0
Mutual funds – Growth
Assets:
Short-term investments in deferred compensation plan	991		991				1,118
Mutual funds – Growth | Level 1
Assets:
Short-term investments in deferred compensation plan	991		991				1,118
Mutual funds – Growth | Level 2
Assets:
Short-term investments in deferred compensation plan	0		0				0
Mutual funds – Growth | Level 3
Assets:
Short-term investments in deferred compensation plan	0		0				0
Mutual funds – Blend
Assets:
Short-term investments in deferred compensation plan	1,625		1,625				2,045
Mutual funds – Blend | Level 1
Assets:
Short-term investments in deferred compensation plan	1,625		1,625				2,045
Mutual funds – Blend | Level 2
Assets:
Short-term investments in deferred compensation plan	0		0				0
Mutual funds – Blend | Level 3
Assets:
Short-term investments in deferred compensation plan	0		0				0
Mutual funds – Foreign blend
Assets:
Short-term investments in deferred compensation plan	528		528				812
Mutual funds – Foreign blend | Level 1
Assets:
Short-term investments in deferred compensation plan	528		528				812
Mutual funds – Foreign blend | Level 2
Assets:
Short-term investments in deferred compensation plan	0		0				0
Mutual funds – Foreign blend | Level 3
Assets:
Short-term investments in deferred compensation plan	0		0				0
Mutual funds – Fixed income
Assets:
Short-term investments in deferred compensation plan	398		398				941
Mutual funds – Fixed income | Level 1
Assets:
Short-term investments in deferred compensation plan	0		0				0
Mutual funds – Fixed income | Level 2
Assets:
Short-term investments in deferred compensation plan	398		398				941
Mutual funds – Fixed income | Level 3
Assets:
Short-term investments in deferred compensation plan	$ 0		$ 0				$ 0
Designated as Hedging Instrument | Interest Rate Swap
Liabilities:
Notional amount of derivative liabilities						$ 1,500,000
Cash Flow Hedging | Designated as Hedging Instrument | Interest Rate Swap
Liabilities:
Number of interest rate swaps | instrument						3
Cash Flow Hedging | Designated as Hedging Instrument | Interest Rate Swap One
Liabilities:
Derivative, fixed interest rate						5.918%
Notional amount of derivative liabilities						$ 500,000
Cash Flow Hedging | Designated as Hedging Instrument | Interest Rate Swap Two
Liabilities:
Derivative, fixed interest rate						5.906%
Notional amount of derivative liabilities						$ 500,000
Cash Flow Hedging | Designated as Hedging Instrument | Interest Rate Swap Three
Liabilities:
Derivative, fixed interest rate						5.907%
Notional amount of derivative liabilities						$ 500,000

XML

GOODWILL (Details) - USD ($) $ in Thousands	2 Months Ended	9 Months Ended
	Dec. 31, 2018	Sep. 28, 2019
Goodwill [Roll Forward]
Balance	$ 148,291	$ 1,640,211
Goodwill recognized from merger and acquisition	1,494,053	60,487
Currency translation	(2,133)	1,721
Purchase accounting adjustments		(24,490)
Balance	1,640,211	1,677,929
Commercial
Goodwill [Roll Forward]
Balance	148,291	148,291
Goodwill recognized from merger and acquisition	0	0
Currency translation	0	0
Purchase accounting adjustments		0
Balance	148,291	148,291
Siding
Goodwill [Roll Forward]
Balance	0	853,386
Goodwill recognized from merger and acquisition	854,606	60,487
Currency translation	(1,220)	985
Purchase accounting adjustments		(14,009)
Balance	853,386	900,849
Windows
Goodwill [Roll Forward]
Balance	0	638,534
Goodwill recognized from merger and acquisition	639,447	0
Currency translation	(913)	736
Purchase accounting adjustments		(10,481)
Balance	$ 638,534	$ 628,789

XML

ACCOUNTING PRONOUNCEMENTS (Details) - USD ($)	Sep. 28, 2019	Jan. 01, 2019	Oct. 29, 2018	Oct. 28, 2018	Oct. 29, 2017
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Lease liabilities	$ 312,617,000	$ 304,100,000
Lease right-of-use assets	$ 308,256,000	304,100,000
Cumulative effect of accounting change				$ (3,358,000)	$ 0
Retained Earnings (Deficit)
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Cumulative effect of accounting change				$ (3,358,000)	$ (1,351,000)
Accounting Standards Update 2016-02 | Retained Earnings (Deficit)
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Cumulative effect of accounting change		$ 0
Accounting Standards Update 2014-09 | Retained Earnings (Deficit)
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Cumulative effect of accounting change			$ 2,600,000
Accounting Standards Update 2016-16 | Retained Earnings (Deficit)
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Cumulative effect of accounting change			$ 700,000

XML

STOCK REPURCHASE PROGRAM

9 Months Ended

Sep. 28, 2019

Equity [Abstract]

STOCK REPURCHASE PROGRAM

STOCK REPURCHASE PROGRAM

On September 8, 2016, the Company announced that its Board of Directors authorized a stock repurchase program for the repurchase of up to an aggregate of $50.0 million of the Company’s outstanding Common Stock. On October 10, 2017 and March 7, 2018, the Company announced that its Board of Directors authorized new stock repurchase programs for the repurchase of up to an aggregate of $50.0 million and an additional $50.0 million, respectively, of the Company’s outstanding Common Stock for a cumulative total of $100.0 million. Under these repurchase programs, the Company is authorized to repurchase shares, if at all, at times and in amounts that it deems appropriate in accordance with all applicable securities laws and regulations. Shares repurchased pursuant to the repurchase programs are usually retired. There is no time limit on the duration of the programs.

During the nine months ended September 28, 2019, there were no repurchases under the stock repurchase programs. During the nine months ended July 29, 2018, the Company repurchased approximately 2.7 million shares for $46.7 million under the stock repurchase programs, which included 1.15 million shares for $22.3 million purchased pursuant to the CD&R Fund VIII Investor Group’s 2017 Secondary Offering (see Note 14 — CD&R Investor Group). As of September 28, 2019, approximately $55.6 million remained available for stock repurchases under the programs. The timing and method of any repurchases, which will depend on a variety of factors, including market conditions, are subject to results of operations, financial conditions, cash requirements and other factors, and may be suspended or discontinued at any time.

During the nine months ended September 28, 2019 and July 29, 2018, the Company withheld thirty-five thousand and 0.3 million shares, respectively, of stock to satisfy minimum tax withholding obligations arising in connection with the vesting of stock awards, which are included in treasury stock purchases in the consolidated statements of stockholders’ equity.

During the nine months ended September 28, 2019, the Company cancelled 0.1 million shares related to shares withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of stock awards, resulting in a $0.7 million decrease in both treasury stock and additional paid in capital. During the nine months ended July 29, 2018, the Company cancelled 2.9 million shares related to shares withheld to satisfy minimum tax withholding obligations arising in connection with the vesting of stock awards and shares repurchased under the stock repurchase programs, resulting in an approximate $51.8 million decrease in both treasury stock and additional paid in capital.

XML

CONTINGENCIES

9 Months Ended

Sep. 28, 2019

Commitments and Contingencies Disclosure [Abstract]

CONTINGENCIES

CONTINGENCIES

As a manufacturer of products primarily for use in building construction, the Company is inherently exposed to various types of contingent claims, both asserted and unasserted, in the ordinary course of business. As a result, from time to time, the Company and/or its subsidiaries become involved in various legal proceedings or other contingent matters arising from claims or potential claims. The Company insures against these risks to the extent deemed prudent by its management and to the extent insurance is available. Many of these insurance policies contain deductibles or self-insured retentions in amounts the Company deems prudent and for which the Company is responsible for payment. In determining the amount of self-insurance, it is the Company’s policy to self-insure those losses that are predictable, measurable and recurring in nature. The Company regularly reviews the status of ongoing proceedings and other contingent matters along with legal counsel. Liabilities for such items are recorded when it is probable that the liability has been incurred and when the amount of the liability can be reasonably estimated. Liabilities are adjusted when additional information becomes available. Management believes that the ultimate disposition of these matters will not have a material adverse effect on the Company’s results of operations, financial position or cash flows. However, such matters are subject to many uncertainties and outcomes are not predictable with assurance.

Environmental

The Company is subject to United States and Canadian federal, state, provincial and local laws and regulations relating to pollution and the protection of the environment, including those governing emissions to air, discharges to water, use, storage, treatment, disposal and transport of hazardous waste and other materials, investigation and remediation of contaminated sites, and protection of worker health and safety. From time to time, the Company’s facilities are subject to investigation by governmental authorities. In addition, the Company has been identified as one of many potentially responsible parties for contamination present at certain offsite locations to which it or its predecessors are alleged to have sent hazardous materials for recycling or disposal. The Company may be held liable, or incur fines or penalties, in connection with such requirements or liabilities for, among other things, releases of hazardous substances occurring on or emanating from current or formerly owned or operated properties or any associated offsite disposal location, or for known or newly-discovered contamination at any of the Company’s properties from activities conducted by it or previous occupants. The amount of any liability, fine or penalty may be material, and certain environmental laws impose strict, and under certain circumstances joint and several, liability for the cost of addressing releases of hazardous substances upon certain classes of persons, including site owners or operators and persons that disposed or arranged for the disposal of hazardous substances at contaminated sites.

One of the Company’s subsidiaries entered into an Administrative Order on Consent (the “Consent Order”), effective September 12, 2011, with the United States Environmental Protection Agency (“EPA”), under the Resource Conservation and Recovery Act (“RCRA”), with respect to its Rocky Mount, Virginia property. During 2011, as part of the Consent Order, the Company provided the EPA, among other things, a RCRA Facility Investigation Workplan (the “Workplan”). In 2012, the EPA approved the Workplan, which the Company is currently implementing. Current estimates of remaining costs for predicted assessment, remediation and monitoring activities as of September 28, 2019 are $4.5 million. The Company has recorded approximately $0.3 million of this environmental liability within current liabilities at September 28, 2019 and approximately $4.2 million within other long-term liabilities in the Company’s consolidated balance sheets at September 28, 2019. The Company may incur costs that exceed its recorded environmental liability. The Company will adjust its environmental remediation liability in future periods, if necessary, as further information develops or circumstances change.

The EPA is investigating groundwater contamination at a Superfund site in York, Nebraska referred to as the “PCE/TCE Northeast Contamination Site”. A subsidiary of the Company has been named a potentially responsible party (“PRP”) with respect to the PCE/TCE Northeast Contamination Site. As a PRP, the Company could have liability for investigation and remediation costs associated with the contamination. Given the current status of this matter, the Company has recorded a liability of $5.0 million within other long-term liabilities in its consolidated balance sheets as of September 28, 2019.

The Company is a party to various acquisition and other agreements pursuant to which third parties agreed to indemnify the Company for certain costs relating to environmental liabilities. For example, the Company may be able to recover some of its Rocky Mount, Virginia investigation and remediation costs from U.S. Industries, Inc. and may be able to recover a portion of costs incurred in connection with the York, Nebraska contamination matter from Novelis Corporation as successor to Alcan Aluminum Corporation, the former owner of the York, Nebraska location. The Company’s ability to seek indemnification from parties that have agreed to indemnify it may be limited. There can be no assurance that the Company would receive any funds from these parties, and any related environmental liabilities or costs could have a material adverse effect on our financial condition and results of operations.

Based on current information, the Company is not aware of any environmental compliance obligations, claims or investigations that will have a material adverse effect on its results of operations, cash flows or financial position except as otherwise disclosed in the Company’s consolidated financial statements. However, there can be no guarantee that previously known or newly-discovered matters will not result in material costs or liabilities.

Litigation

The Company believes it has valid defenses to the outstanding claims discussed below and will vigorously defend all such claims; however, litigation is subject to many uncertainties and there cannot be any assurance that the Company will ultimately prevail or, in the event of an unfavorable outcome or settlement of litigation, that the ultimate liability would not be material and would not have a material adverse effect on the business, results of operations, cash flows or financial position of the Company.

In November 2018, Aurora Plastics, LLC (“Aurora”) initiated an arbitration demand against Atrium Windows and Doors, Inc., Atrium Extrusion Systems, Inc., and North Star Manufacturing (London) Ltd. (collectively, “Atrium”) pursuant to a Third Amended and Restated Vinyl Compound and Supply Agreement dated as of December 22, 2016. Aurora alleges that Atrium’s breach of the Agreement has resulted in damages in excess of $48.0 million. Arbitration of the matter is currently stayed but may begin in 2019.

On November 14, 2018, an individual stockholder, Gary D. Voigt, filed a putative class action complaint in the Delaware Court of Chancery against CD&R, CD&R Fund VIII, and certain directors of the Company. Voigt purports to assert claims on behalf of himself, on behalf of a class of other similarly situated stockholders of the Company, and derivatively on behalf of the Company, the nominal defendant. An amended complaint was filed on April 11, 2019. The amended complaint asserts claims for breach of fiduciary duty and unjust enrichment against CD&R Fund VIII and CD&R, and for breach of fiduciary duty against the director defendants in connection with the Merger. Voigt seeks damages in an amount to be determined at trial. The Company intends to vigorously defend the litigation.

Other contingencies

The Company is subject to other contingencies, including legal proceedings and claims arising out of its operations and businesses that cover a wide range of matters, including, among others, environmental, contract, employment, intellectual property, securities, personal injury, property damage, product liability, warranty, and modification, adjustment or replacement of component parts or units sold, which may include product recalls. Product liability, environmental and other legal proceedings also include matters with respect to businesses previously owned. The Company has used various substances in products and manufacturing operations, which have been or may be deemed to be hazardous or dangerous, and the extent of its potential liability, if any, under environmental, product liability and workers’ compensation statutes, rules, regulations and case law is unclear.  Further, due to the lack of adequate information and the potential impact of present regulations and any future regulations, there are certain circumstances in which no range of potential exposure may be reasonably estimated. Also, it is not possible to ascertain the ultimate legal and financial liability with respect to certain contingent liabilities, including lawsuits, and therefore no such estimate has been made as of September 28, 2019.

XML

INVENTORIES

9 Months Ended

Sep. 28, 2019

Inventory Disclosure [Abstract]

INVENTORIES

INVENTORIES

The components of inventory are as follows (in thousands):

	September 28, 2019		October 28, 2018
Raw materials	$	265,888	$	205,902
Work in process and finished goods	202,028		48,629
	$	467,916	$	254,531

XML

SHARE-BASED COMPENSATION

9 Months Ended

Sep. 28, 2019

Share-based Payment Arrangement [Abstract]

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

Our 2003 Long-Term Stock Incentive Plan, as amended (the “Incentive Plan”), is an equity-based compensation plan that allows us to grant a variety of types of awards, including stock options, restricted stock awards, stock appreciation rights, cash awards, phantom stock awards, restricted stock unit awards and long-term incentive awards with performance conditions (“Performance Share Awards”). Awards are generally granted once per year, with the amounts and types of awards determined by the Compensation Committee of our Board of Directors (the “Committee”). In connection with the Merger, on November 16, 2018 awards were granted to certain senior executives and key employees (the “Founders Awards”), which included stock options, restricted stock units (“RSUs”) and performance share units (“PSUs”). A portion of the Founders Awards was not granted under the Incentive Plan but was instead granted pursuant to a separate equity-based compensation plan, the Long-Term Incentive Plan consisting of award agreements for select Founders Awards. However, these awards were subject to the same terms and provisions as awards of the same type granted under the Incentive Plan.

As of September 28, 2019, and for all periods presented, the Founders Awards and our share-based awards under the Incentive Plan have consisted of RSUs, PSUs and stock option grants, none of which can be settled through cash payments, and Performance Share Awards, which are settled in cash. Both our stock options and restricted stock awards are subject only to vesting requirements based on continued employment at the end of a specified time period and typically vest in annual increments over three to five years or earlier upon death, disability or a change of control. Restricted stock awards do not vest upon attainment of a specified retirement age, as provided by the agreements governing such awards. The vesting of our Performance Share Awards is described below.

As a general rule, option awards terminate on the earlier of (i) 10 years from the date of grant, (ii) 60 days after termination of employment or service for a reason other than death, disability or retirement, or (iii) 180 days after death, disability or retirement. Awards are non-transferable except by disposition on death or to certain family members, trusts and other family entities as the Committee may approve. Awards may be paid in cash, shares of our Common Stock or a combination, in lump sum or installments and currently or by deferred payment, all as determined by the Committee.

Our time-based restricted stock awards are typically subject to graded vesting over a service period, which is three or five years. Our performance-based and market-based restricted stock awards are typically subject to cliff vesting at the end of the service period, which is typically three years. Our share-based compensation arrangements are equity classified and we recognize compensation cost for these awards on a straight-line basis over the requisite service period for each award grant. In the case of performance-based awards, expense is recognized based upon management’s assessment of the probability that such performance conditions will be achieved. Certain of our awards provide for accelerated vesting upon a change of control or upon termination without cause or for good reason.

Founders Awards granted to our senior executives and certain key employees included options, RSUs and PSUs. The options and RSUs vest subject to continued employment 20% per year on the first through fifth anniversary of the award. Vesting of the PSUs is contingent upon the achievement of synergies captured from the Merger and continued employment during a three-year performance period beginning on the grant date. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts. The PSUs vest pro rata if an executive’s employment terminates after 50% of the service period has passed and prior to the end of the performance period due to death, disability, or termination by the Company without cause or by the executive for good reason. If an executive’s employment terminates for any other reason prior to the end of the performance period, all outstanding unvested PSUs, whether earned or unearned, are forfeited and cancelled. If a change in control of the Company occurs, and the plan is not accepted by the successor entity, prior to the end of the performance period, the PSU payout is calculated and paid assuming that the maximum benefit had been achieved. If the plan is accepted, awards will continue to vest as RSUs with a double trigger acceleration upon termination by the Company without cause or by the executive for good reason. If an executive’s employment terminates due to death or disability while any of the restricted stock is unvested, then all of the unvested restricted stock shall become vested. If an executive’s employment is terminated by the Company without cause or by the executive for good reason, the unvested restricted stock is forfeited. If a change in control of the Company occurs, and the plan is not accepted by the successor entity, prior to the end of the performance period, the restricted stock fully vests. If the plan is accepted, awards will continue to vest with a double trigger acceleration upon termination by the Company without cause or by the executive for good reason. The fair value of the awards is based on the Company’s stock price as of the date of grant.

Stock option awards

During the nine months ended September 28, 2019, we granted 0.4 million stock options. The average grant date fair value of options granted during the nine months ended September 28, 2019 was $1.97 per share. We did not grant stock options during the nine months ended July 29, 2018. No options were exercised during the nine months ended September 28, 2019. During the nine months ended July 29, 2018, 0.1 million options with an intrinsic value of $0.8 million were exercised and cash received from options exercised was $1.3 million.

Restricted stock units and performance share units

Annual awards to our key employees generally have a three-year performance period. The fair value of RSUs awarded is based on the Company’s stock price as of the date of grant. During the nine months ended September 28, 2019, we granted RSUs to key employees with a fair value of $2.8 million representing approximately 0.5 million shares. During the nine months ended July 29, 2018, we granted RSUs with a fair value of $6.8 million, representing 0.3 million shares.

During the nine months ended September 28, 2019, we granted PSUs with a total fair value of approximately $0.4 million to key employees. During the nine months ended July 29, 2018, we granted PSUs with a total fair value of approximately $3.8 million and $2.8 million, to the Company’s senior executives and key employees, respectively. On November 16, 2018, upon consummation of the Merger, certain PSUs that were issued in fiscal 2017 and fiscal 2018 converted to RSUs at 100% and continue to vest in accordance with the original schedule, as the Board of Directors approved the treatment of existing awards, at the Merger date, as if a change in control had occurred, per the respective agreements governing each award.

Share-based compensation expense

During the three and nine months ended September 28, 2019 we recorded share-based compensation expense for all awards of $3.1 million and $10.6 million, respectively. During the three and nine months ended July 29, 2018, we recorded share-based compensation expense for all awards of $1.0 million and $8.9 million, respectively. Share-based compensation expense for the nine months ended July 29, 2018 included accelerated awards of $3.6 million due to the retirement of the Company’s former CEO.

XML

EARNINGS PER COMMON SHARE (Tables)

9 Months Ended

Sep. 28, 2019

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

The reconciliation of the numerator and denominator used for the computation of basic and diluted earnings per common share is as follows (in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Numerator for Basic and Diluted Earnings Per Common Share
Net income (loss) applicable to common shares	$	24,790	$	35,765	$	(17,320)	$	35,303
Denominator for Basic and Diluted Income Per Common Share
Weighted average basic number of common shares outstanding	125,557		66,335		125,526		66,361
Common stock equivalents:
Employee stock options	1		95		—		98
PSUs and Performance Share Awards	—		8		—		18
Weighted average diluted number of common shares outstanding	125,558		66,438		125,526		66,477
Basic income (loss) per common share	$	0.20	$	0.54	$	(0.14)	$	0.53
Diluted income (loss) per common share	$	0.20	$	0.54	$	(0.14)	$	0.53
Incentive Plan securities excluded from dilution(1)	5,189		—		4,974		—

(1)Represents securities not included in the computation of diluted earnings per common share because their effect would have been anti-dilutive.

XML

INVENTORIES (Tables)

9 Months Ended

Sep. 28, 2019

Inventory Disclosure [Abstract]

Schedule of Inventory Components

The components of inventory are as follows (in thousands):

	September 28, 2019		October 28, 2018
Raw materials	$	265,888	$	205,902
Work in process and finished goods	202,028		48,629
	$	467,916	$	254,531

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 28, 2019

Fair Value Disclosures [Abstract]

Schedule of Fair Value Not Currently Recognized on Balance sheet

The fair values of the remaining financial instruments not currently recognized at fair value on our consolidated balance sheets at the respective period ends were (in thousands): 

	September 28, 2019				October 28, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term Loan Facilities	$	2,536,397	$	2,478,263	$	412,925	$	412,409
8.00% Senior Notes	645,000		632,100		—		—

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following tables summarize information regarding our financial assets and liabilities that are measured at fair value on a recurring basis as of September 28, 2019 and October 28, 2018, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

	September 28, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Short-term investments in deferred compensation plan(1):
Money market	$	27	$	—	$	—	$	27
Mutual funds – Growth	991		—		—		991
Mutual funds – Blend	1,625		—		—		1,625
Mutual funds – Foreign blend	528		—		—		528
Mutual funds – Fixed income	—		398		—		398
Total short-term investments in deferred compensation plan(2)	3,171		398		—		3,569
Foreign currency hedge(4)	—		95		—		—
Total assets	$	3,171	$	493	$	—	$	3,664
Liabilities:
Deferred compensation plan liability(2)	$	—	$	3,564	$	—	$	3,564
Interest rate swap liability(3)	—		38,853		—		38,853
Total liabilities	$	—	$	42,417	$	—	$	42,417

	October 28, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Short-term investments in deferred compensation plan(1):
Money market	$	369	$	—	$	—	$	369
Mutual funds – Growth	1,118		—		—		1,118
Mutual funds – Blend	2,045		—		—		2,045
Mutual funds – Foreign blend	812		—		—		812
Mutual funds – Fixed income	—		941		—		941
Total short-term investments in deferred compensation plan(2)	4,344		941		—		5,285
Total assets	$	4,344	$	941	$	—	$	5,285
Liabilities:
Deferred compensation plan liability(2)	$	—	$	4,639	$	—	$	4,639
Total liabilities	$	—	$	4,639	$	—	$	4,639

(1)Unrealized holding gains (losses) for the three months ended September 28, 2019 and July 29, 2018 were $(0.1) million and $0.2 million, respectively. Unrealized holding gains for the nine months ended September 28, 2019 and July 29, 2018 were $0.4 million and $0.3 million, respectively. These unrealized holding gains (losses) were substantially offset by changes in the deferred compensation plan liability.

(2)The Company records the short-term investments in deferred compensation plan within investments in debt and equity securities, at market, and the deferred compensation plan liability within accrued compensation and benefits on the consolidated balance sheets.

(3)In May 2019, the Company entered into interest rate swaps to mitigate variability in forecasted interest payments on $1,500.0 million of the Company’s unsecured variable debt. The interest rate swaps effectively convert a portion of the floating rate interest payments into a fixed rate interest payment. There are three interest rate swaps that cover $500.0 million of notional debt each and fix the interest rate at 5.918%, 5.906% and 5.907%, respectively. The Company designated the interest rate swaps as qualifying hedging instruments and accounts for these derivatives as cash flow hedges. The interest rate swap liability is included within other long-term liabilities on the consolidated balance sheets.

(4)In July 2019, the Company entered into a forward contract agreement to hedge approximately $21.9 million of its 2019 non-functional currency inventory purchases. This forward contract was established to protect the Company from variability in cash flows attributable to changes in the U.S. dollar relative to the Canadian dollar. As a cash flow hedge, unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The forward contract is highly correlated to the changes in the U.S. dollar relative to the Canadian dollar. Unrealized gains and losses on these agreements are designated as effective or ineffective. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion of such gains or losses is recorded as a component of cost of goods sold. Future realized gains and losses in connection with each inventory purchase will be reclassified from accumulated other comprehensive income or loss to cost of goods sold. The gains and losses on the derivative contract that are reclassified from accumulated other comprehensive income or loss to current period earnings are included in the line item in which the hedged item is recorded in the same period the forecasted transaction affects earnings. During the three months ended September 28, 2019, the Company realized a gain of approximately $0.1 million within cost of goods sold in the consolidated statement of operations based on these cash flow hedges. The changes in fair values of derivatives that have been designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income or loss and are reclassified into cost of goods sold in the same period the hedged item affects earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair value or cash flows of the underlying exposures being hedged. The changes in the fair value of derivatives that do not qualify as effective are immediately recognized in earnings.

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 28, 2019	Jul. 29, 2018	Sep. 28, 2019	Jul. 29, 2018
Income Statement [Abstract]
Sales	$ 1,285,043	$ 548,525	$ 3,645,332	$ 1,426,943
Cost of sales	975,240	415,124	2,844,949	1,097,542
Gross profit	309,803	133,401	800,383	329,401
Selling, general and administrative expenses	154,034	79,039	466,368	228,231
Intangible asset amortization	44,725	2,412	132,699	7,237
Restructuring and impairment charges, net	4,984	(439)	15,522	1,143
Strategic development and acquisition related costs	10,500	3,642	36,668	5,503
Loss (gain) on disposition of business	0	(1,013)	0	5,673
Gain on insurance recovery	0	(4,741)	0	(4,741)
Income from operations	95,560	54,501	149,126	86,355
Interest income	155	48	491	118
Interest expense	(56,549)	(4,572)	(173,134)	(16,913)
Foreign exchange gain (loss)	(616)	(258)	1,084	(92)
Loss on extinguishment of debt	0	0	0	(21,875)
Other income, net	717	345	665	1,072
Income (loss) before income taxes	39,267	50,064	(21,768)	48,665
Provision (benefit) for income taxes	14,103	14,078	(4,448)	13,114
Net income (loss)	25,164	35,986	(17,320)	35,551
Net income allocated to participating securities	(374)	(221)	0	(248)
Net income (loss) applicable to common shares	$ 24,790	$ 35,765	$ (17,320)	$ 35,303
Income (loss) per common share:
Basic (in USD per share)	$ 0.20	$ 0.54	$ (0.14)	$ 0.53
Diluted income (loss) per common share (in USD per share)	$ 0.20	$ 0.54	$ (0.14)	$ 0.53
Weighted average number of common shares outstanding:
Basic (in shares)	125,557	66,335	125,526	66,361
Diluted (in shares)	125,558	66,438	125,526	66,477

XML

DEFINED BENEFIT PLANS - Periodic Benefits Cost (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 28, 2019	Jul. 29, 2018	Sep. 28, 2019	Jul. 29, 2018
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 17	$ 29	$ 49	$ 86
Interest cost	1,040	556	3,119	1,666
Expected return on assets	(1,234)	(729)	(3,701)	(2,187)
Amortization of prior service cost	15	15	43	43
Amortization of net actuarial loss	704	248	2,112	743
Net periodic benefit cost	542	119	1,622	351
Defined Benefit Plans
Defined Benefit Plan Disclosure [Line Items]
Service cost	11	22	32	65
Interest cost	974	494	2,922	1,481
Expected return on assets	(1,234)	(729)	(3,701)	(2,187)
Amortization of prior service cost	15	15	43	43
Amortization of net actuarial loss	704	248	2,112	743
Net periodic benefit cost	470	50	1,408	145
OPEB Plans
Defined Benefit Plan Disclosure [Line Items]
Service cost	6	7	17	21
Interest cost	66	62	197	185
Expected return on assets	0	0	0	0
Amortization of prior service cost	0	0	0	0
Amortization of net actuarial loss	0	0	0	0
Net periodic benefit cost	$ 72	$ 69	$ 214	$ 206

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 28, 2019	Jul. 29, 2018
Cash flows from operating activities:
Net income (loss)	$ (17,320)	$ 35,551
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	191,485	30,974
Non-cash interest expense	6,233	1,140
Loss on extinguishment of debt	0	21,875
Share-based compensation expense	10,613	8,909
Loss on disposition of business, net	0	5,092
Gain on insurance recovery	0	(4,741)
Non-cash fair value premium on purchased inventory	16,249	0
Gains on asset sales, net	(335)	(875)
Provision for doubtful accounts	(492)	(177)
Deferred income taxes	(45,192)	(1,676)
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable	(138,329)	(13,512)
Inventories	63,327	(64,882)
Income taxes	1,256	2,446
Prepaid expenses and other	(4,374)	(3,686)
Accounts payable	8,486	34,567
Accrued expenses	(21,005)	6,088
Other, net	(2,783)	(185)
Net cash provided by operating activities	67,819	56,908
Cash flows from investing activities:
Acquisitions, net of cash acquired	(179,184)	0
Capital expenditures	(86,364)	(34,867)
Proceeds from sale of property, plant and equipment	873	6,338
Business disposition, net	0	(1,426)
Proceeds from insurance	0	4,741
Net cash used in investing activities	(264,675)	(25,214)
Cash flows from financing activities:
Proceeds from stock options exercised	0	1,279
Proceeds from ABL facility	290,000	85,000
Payments on ABL facility	(120,000)	(85,000)
Proceeds from term loan	0	415,000
Payments on term loan	(12,810)	(145,184)
Payments on senior notes	0	(265,470)
Payments on note payable	0	(1,245)
Payments of financing costs	0	(6,521)
Payments related to tax withholding for share-based compensation	(231)	(5,048)
Purchases of treasury stock	0	(46,705)
Net cash provided by (used in) financing activities	156,959	(53,894)
Effect of exchange rate changes on cash and cash equivalents	1,406	(92)
Net decrease in cash, cash equivalents and restricted cash	(38,491)	(22,292)
Cash, cash equivalents and restricted cash at beginning of period	147,607	65,794
Cash, cash equivalents and restricted cash at end of period	$ 109,116	$ 43,502

XML

ASSETS HELD FOR SALE (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 28, 2019	Oct. 28, 2018
Long Lived Assets Held-for-sale [Line Items]
Assets held for sale, carrying value, current	$ 5,018	$ 7,272
Proceeds from sale of assets held for sale	900
Net gain on sale of facility	300
Assets held-for-sale, fair value	5,000
Commercial
Long Lived Assets Held-for-sale [Line Items]
Decrease in assets-held-for-sale	$ 1,700

XML

SHARE-BASED COMPENSATION (Details) - USD ($)		3 Months Ended		9 Months Ended
	Nov. 16, 2018	Sep. 28, 2019	Jul. 29, 2018	Sep. 28, 2019	Jul. 29, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option awards, termination period from grant date				10 years
Expiration period, after termination of employment				60 days
Expiration period, after death, disability or retirement				180 days
Stock options, grants in period (in shares)				400,000	0
Stock options, grant date fair value (in dollars per share)				$ 1.97
Stock options exercised (in shares)				0	100,000
Stock options exercised, intrinsic value					$ 800,000
Proceeds from stock options exercised				$ 0	1,279,000
Conversion of stock, percentage	100.00%
Allocated share-based compensation expense		$ 3,100,000	$ 1,000,000.0	$ 10,600,000	8,900,000
Accelerated awards due to retirement					3,600,000
Employee stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting percentage per year				20.00%
PSUs and Performance Share Awards | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock awards, targeted number of shares (as a percent)		0.00%		0.00%
PSUs and Performance Share Awards | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock awards, targeted number of shares (as a percent)		200.00%		200.00%
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting percentage per year				20.00%
Value, restricted stock award, gross				$ 2,800,000	$ 6,800,000
Shares, restricted stock award, gross (in shares)					300,000
Performance Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock awards, minimum service period required for vesting (as a percent)				50.00%
Incentive Plan | Employee stock options | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period				3 years
Incentive Plan | Employee stock options | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period				5 years
Incentive Plan | PSUs and Performance Share Awards | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period				3 years
Incentive Plan | Restricted Stock Units (RSUs) | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period				3 years
Incentive Plan | Restricted Stock Units (RSUs) | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period				5 years
Key Employee Awards | Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares, restricted stock award, gross (in shares)				500,000
Key Employee Awards | Performance Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock award grants, fair value				$ 400,000	$ 2,800,000
Executive Awards | Performance Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock award grants, fair value					$ 3,800,000

XML

ACQUISITIONS - Schedule of Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands	Sep. 28, 2019	Feb. 20, 2019	Jan. 01, 2019	Dec. 31, 2018	Nov. 16, 2018	Oct. 28, 2018
Assets acquired:
Goodwill	$ 1,677,929			$ 1,640,211		$ 148,291
Liabilities assumed:
Lease liabilities	$ 312,617		$ 304,100
Environmental Stoneworks
Assets acquired:
Restricted cash		$ 3,379
Accounts receivable		17,134
Inventories		13,062
Prepaid expenses and other current assets		3,677
Property, plant and equipment		14,295
Lease right of use assets		11,372
Intangible assets (trade names/customer relationships)		91,170
Goodwill		60,487
Other assets		157
Total assets acquired		214,733
Liabilities assumed:
Accounts payable		5,910
Other accrued expenses		11,445
Lease liabilities		11,365
Other long-term liabilities		3,450
Total liabilities assumed		32,170
Net assets acquired		$ 182,563
Ply Gem
Assets acquired:
Cash					$ 102,121
Accounts receivable					345,801
Inventories					301,513
Prepaid expenses and other current assets					51,223
Property, plant and equipment					364,981
Intangible assets (trade names/customer relationships)					1,720,000
Goodwill					1,469,563
Other assets					3,262
Total assets acquired					4,358,464
Liabilities assumed:
Accounts payable					139,955
Other accrued expenses					246,341
Other long-term liabilities					31,947
Other long-term liabilities ($163.6 million for accrued long-term warranty)					163,561
Tax receivable agreement liability					47,355
Current warranty liabilities					25,300
Debt (inclusive of current portion)					2,674,767
Deferred income taxes					325,593
Total liabilities assumed					3,629,519
Net assets acquired					728,945
Current warranty liabilities					25,300
Accrued long-term warranty					$ 163,600

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Reconciliation of Cash, Cash Equivalents and Restricted Cash (Details) $ in Thousands	2 Months Ended		3 Months Ended		9 Months Ended
	Dec. 31, 2018 USD ($) reporting_segment	Dec. 31, 2018 USD ($) operating_segment	Sep. 28, 2019 USD ($)	Jul. 29, 2018 USD ($)	Sep. 28, 2019 USD ($)	Jul. 29, 2018 USD ($)	Oct. 28, 2018 USD ($)	Oct. 29, 2017 USD ($)
Restructuring Cost and Reserve [Line Items]
Number of reportable segments	3	3
Loss (gain) on disposition of business			$ 0	$ (1,013)	$ 0	$ 5,673
Cash and cash equivalents			105,244		105,244		$ 54,272
Restricted cash			3,872		3,872
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$ 147,607	$ 147,607	$ 109,116	43,502	$ 109,116	43,502		$ 65,794
Commercial
Restructuring Cost and Reserve [Line Items]
Loss (gain) on disposition of business				(1,000)		(1,000)
Commercial | CENTRIA International LLC
Restructuring Cost and Reserve [Line Items]
Loss (gain) on disposition of business						$ 6,700
Natural Disasters and Other Casualty Events
Restructuring Cost and Reserve [Line Items]
Insurance settlement contingent replacement cost receivable maximum				4,700
Gain on insurance recovery				$ 4,700

XML

INTANGIBLES (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 28, 2019	Oct. 28, 2018
Finite-Lived Intangible Assets [Line Items]
Accumulated amortization	$ (205,065)	$ (51,303)
Indefinite-lived trade names		13,455
Total intangible assets, cost	1,990,002	178,832
Total intangible assets, net carrying value	1,784,937	$ 127,529
Trademarks and Trade Names
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (in years)		15 years
Amortized intangible assets	252,942	$ 29,167
Accumulated amortization	(34,257)	(12,657)
Net carrying value	$ 218,685	16,510
Trademarks and Trade Names | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (in years)	6 years
Trademarks and Trade Names | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (in years)	15 years
Customer Lists and Relationships
Finite-Lived Intangible Assets [Line Items]
Amortized intangible assets	$ 1,737,060	136,210
Accumulated amortization	(170,808)	(38,646)
Net carrying value	$ 1,566,252	$ 97,564
Customer Lists and Relationships | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (in years)	5 years	12 years
Customer Lists and Relationships | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (in years)	20 years	20 years
Trade Names
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (in years)	8 years

XML

STOCK REPURCHASE PROGRAM (Details) - USD ($)	2 Months Ended	3 Months Ended		9 Months Ended
	Dec. 31, 2018	Sep. 28, 2019	Jul. 29, 2018	Sep. 28, 2019	Jul. 29, 2018	Mar. 07, 2018	Oct. 10, 2017	Sep. 08, 2016
Class of Stock [Line Items]
Payments for repurchase of common stock				$ 0	$ 46,705,000
Available for stock repurchases		$ 55,600,000		$ 55,600,000
Shares withheld to satisfy minimum tax withholding obligations (in shares)				35,000	300,000
Retirement of treasury stock previously withheld or repurchased (in shares)				100,000	2,900,000
2016 Stock Repurchase Program
Class of Stock [Line Items]
Authorized stock repurchase amount								$ 50,000,000.0
2017 Stock Repurchase Program
Class of Stock [Line Items]
Authorized stock repurchase amount							$ 50,000,000.0
2018 Stock Repurchase Program
Class of Stock [Line Items]
Authorized stock repurchase amount						$ 50,000,000.0
Stock Repurchase Programs
Class of Stock [Line Items]
Authorized stock repurchase amount		$ 100,000,000.0		$ 100,000,000.0
Treasury stock purchases (in shares)				0	2,700,000
Payments for repurchase of common stock					$ 46,700,000
Additional Paid-in Capital
Class of Stock [Line Items]
Decrease in treasury stock and additional paid in capital due to retirement of shares previously withheld or repurchased				$ 700,000	$ 51,800,000
Treasury Stock
Class of Stock [Line Items]
Treasury stock purchases (in shares)	347,040	12,612	21,940	34,724	2,938,974
Decrease in treasury stock and additional paid in capital due to retirement of shares previously withheld or repurchased				$ (700,000)	$ (51,800,000)
CDR Fund VIII Investor Group | Secondary Offering
Class of Stock [Line Items]
Treasury stock purchases (in shares)					1,150,000
Payments for repurchase of common stock					$ 22,300,000

XML

SEGMENT INFORMATION (Details) $ in Thousands	2 Months Ended		3 Months Ended		9 Months Ended
	Dec. 31, 2018 reporting_segment	Dec. 31, 2018 operating_segment	Sep. 28, 2019 USD ($)	Jul. 29, 2018 USD ($)	Sep. 28, 2019 USD ($)	Jul. 29, 2018 USD ($)	Oct. 28, 2018 USD ($)
Segment Reporting Information [Line Items]
Number of reportable segments	3	3
Total net sales			$ 1,285,043	$ 548,525	$ 3,645,332	$ 1,426,943
Total operating income			95,560	54,501	149,126	86,355
Unallocated other expense, net			(56,293)	(4,437)	(170,894)	(37,690)
Income (loss) before income taxes			39,267	50,064	(21,768)	48,665
Total assets			5,708,456		5,708,456		$ 1,110,375
Commercial
Segment Reporting Information [Line Items]
Total net sales			464,906	548,525	1,370,152	1,426,943
Siding
Segment Reporting Information [Line Items]
Total net sales			315,799	0	840,601	0
Windows
Segment Reporting Information [Line Items]
Total net sales			504,338	0	1,434,579	0
Operating Segments | Commercial
Segment Reporting Information [Line Items]
Total net sales			464,906	548,525	1,370,152	1,426,943
Total operating income			59,317	79,964	142,436	157,785
Total assets			1,013,517		1,013,517		1,024,433
Operating Segments | Siding
Segment Reporting Information [Line Items]
Total net sales			315,799	0	840,601	0
Total operating income			37,063	0	51,346	0
Total assets			2,395,916		2,395,916		0
Operating Segments | Windows
Segment Reporting Information [Line Items]
Total net sales			504,338	0	1,434,579	0
Total operating income			34,446	0	62,039	0
Total assets			2,100,574		2,100,574		0
Corporate
Segment Reporting Information [Line Items]
Total operating income			(35,266)	$ (25,463)	(106,695)	$ (71,430)
Total assets			$ 198,449		$ 198,449		$ 85,942

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 28, 2019

Accounting Policies [Abstract]

Schedule of Cash and Cash Equivalents

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that total the amounts shown in the consolidated statements of cash flows (in thousands):

	September 28, 2019
Cash and cash equivalents	$	105,244
Restricted cash(1)	3,872
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	109,116

(1)Restricted cash at September 28, 2019 primarily relates to an escrow balance held for an outstanding earnout agreement.

Restrictions on Cash and Cash Equivalents

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that total the amounts shown in the consolidated statements of cash flows (in thousands):

	September 28, 2019
Cash and cash equivalents	$	105,244
Restricted cash(1)	3,872
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	109,116

(1)Restricted cash at September 28, 2019 primarily relates to an escrow balance held for an outstanding earnout agreement.

Disaggregation of Revenue by Segment

The following table presents disaggregated revenue disclosure details of net sales by segment (in thousands):

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Commercial Net Sales Disaggregation:
Metal building products	$	320,028	$	384,311	$	914,623	$	964,924
Insulated metal panels	109,322		106,605		332,403		303,910
Metal coil coating	35,556		57,609		123,126		158,109
Total	$	464,906	$	548,525	$	1,370,152	$	1,426,943
Siding Net Sales Disaggregation:
Vinyl siding	$	148,912	$	—	$	400,220	$	—
Metal	75,933		—		199,265		—
Injection molded	17,429		—		47,163		—
Stone	32,254		—		70,441		—
Other products & services	41,271		—		123,512		—
Total	$	315,799	$	—	$	840,601	$	—
Windows Net Sales Disaggregation:
Vinyl windows	$	481,104	$	—	$	1,355,333	$	—
Aluminum windows	11,951		—		39,678		—
Other	11,283		—		39,568		—
Total	$	504,338	$	—	$	1,434,579	$	—
Total Net Sales:	$	1,285,043	$	548,525	$	3,645,332	$	1,426,943

XML

LONG-TERM DEBT AND NOTE PAYABLE

9 Months Ended

Sep. 28, 2019

Debt Disclosure [Abstract]

LONG-TERM DEBT AND NOTE PAYABLE

LONG-TERM DEBT AND NOTE PAYABLE

Debt is comprised of the following (in thousands):

	September 28, 2019		October 28, 2018
Asset-based revolving credit facility due April 2023	$	170,000	$	—
Asset-based revolving credit facility due February 2023	—		—
Term loan facility due April 2025	2,536,397		—
Term loan facility due February 2025	—		412,925
Cash flow revolver due April 2023	—		—
8.00% senior notes due April 2026	645,000		—
Less: unamortized discounts and unamortized deferred financing costs(1)	(58,151)		(5,699)
Total long-term debt, net of unamortized discounts and unamortized deferred financing costs	3,293,246		407,226
Less: current portion of long-term debt	25,600		4,150
Total long-term debt, less current portion	$	3,267,646	$	403,076

(1)Includes the unamortized deferred financing costs associated with the term loan facilities and senior notes. The unamortized deferred financing costs associated with the asset-based revolving credit facilities of $2.6 million and $1.1 million as of September 28, 2019 and October 28, 2018, respectively, are classified in other assets on the consolidated balance sheets.

Recent Debt Transactions

In connection with the Merger, on November 16, 2018, the Company assumed (i) the obligations of Ply Gem Midco, a subsidiary of Ply Gem immediately prior to the consummation of the Merger, as borrower under the Current Cash Flow Credit Agreement, (ii) the obligations of Ply Gem Midco as parent borrower under the Current ABL Credit Agreement and (iii) the obligations of Ply Gem Midco as issuer under the Current Indenture.

February 2018 Debt Redemption and Refinancing

On February 8, 2018, the Company entered into the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement, the proceeds of which, together, were used to redeem the 8.25% senior notes due 2023 (the “8.25% Senior Notes”) and to refinance the Company’s then-existing term loan credit facility and the Company’s then-existing asset-based revolving credit facility.

Term Loan Credit Agreement due February 2025

On February 8, 2018, the Company entered into the Pre-merger Term Loan Credit Agreement which provided for a term loan credit facility in an original aggregate principal amount of $415.0 million (the “Pre-merger Term Loan Credit Facility”). Proceeds from borrowings under the Pre-merger Term Loan Credit Facility were used, together with cash on hand, (i) to refinance the then existing term loan credit agreement, (ii) to redeem and repay the 8.25% Senior Notes and (iii) to pay any fees, premiums and expenses incurred in connection with the refinancing. On November 16, 2018, the Company repaid the remaining $412.9 million aggregate principal amount of the term loans outstanding under the Pre-merger Term Loan Credit Facility for approximately $413.7 million, reflecting remaining principal and interest, using proceeds from the incremental term loan facility entered into in connection with the Merger.

Term Loan Facility due April 2025 and Cash Flow Revolver due April 2023

On April 12, 2018, Ply Gem Midco entered into the Current Cash Flow Credit Agreement, which provides for (i) a term loan facility (the “Current Term Loan Facility”) in an original aggregate principal amount of $1,755.0 million, issued with a discount of 0.5%, and (ii) a cash flow-based revolving credit facility (the “Current Cash Flow Revolver” and together with the Term Loan Facility, the “Current Cash Flow Facilities”) of up to $115.0 million. The Current Term Loan Facility amortizes in nominal quarterly installments equal to one percent of the aggregate initial principal amount thereof per annum, with the remaining balance payable upon final maturity of the Current Term Loan Facility on April 12, 2025. There are no amortization payments under the Current Cash Flow Revolver, and all borrowings under the Current Cash Flow Revolver mature on April 12, 2023.

On November 16, 2018, the Company entered into an incremental term loan facility in connection with the Merger, which increased the aggregate principal amount of the Current Term Loan Facility by $805.0 million. The proceeds of this incremental term loan facility were used to, among other things, (a) finance the Merger and to pay certain fees, premiums and expenses incurred in connection therewith, (b) repay in full amounts outstanding under the Pre-merger Term Loan Credit Agreement and the Pre-merger ABL Credit Agreement and (c) repay $325.0 million of borrowings outstanding under the ABL Facility. On November 16, 2018, in connection with the consummation of the Merger, NCI and Ply Gem Midco entered into a joinder agreement with respect to the Current Cash Flow Facilities, and the Company became the Borrower (as defined in the Current Cash Flow Credit Agreement) under the Current Cash Flow Facilities.

The Current Term Loan Facility bears annual interest at a floating rate measured by reference to, at the Company’s option, either (i) an adjusted LIBOR rate (subject to a floor of 0.00%) plus an applicable margin of 3.75% per annum or (ii) an alternate base rate plus an applicable margin of 2.75% per annum. At September 28, 2019, the interest rates on the Current Term Loan Facility were as follows:

	September 28, 2019
Interest rate	5.79	%
Effective interest rate	6.51	%

The Company entered into certain interest rate swap agreements during the nine months ended September 28, 2019 to convert a portion of its variable rate debt to fixed. See Note 16 - Fair Value of Financial Instruments and Fair Value Measurements.

Loans outstanding under the Current Cash Flow Revolver bear annual interest at a floating rate measured by reference to, at the Company’s option, either (i) an adjusted LIBOR rate (subject to a floor of 0.00%) plus an applicable margin ranging from 2.50% to 3.00% per annum depending on the Company’s secured leverage ratio or (ii) an alternate base rate plus an applicable margin ranging from 1.50% to 2.00% per annum depending on the Company’s secured leverage ratio. Additionally, unused commitments under the Current Cash Flow Revolver are subject to a fee ranging from 0.25% to 0.50% per annum depending on the Company’s secured leverage ratio.

The Current Term Loan Facility may be prepaid at the Company’s option at any time, subject to minimum principal amount requirements. Prepayments of the Current Term Loan Facility in connection with a repricing transaction (as defined in the Current Cash Flow Credit Agreement) on or prior to April 12, 2019 are subject to a 1.00% prepayment premium. Prepayments may otherwise be made without premium or penalty (other than customary breakage costs). The Current Cash Flow Revolver may be prepaid at the Company’s option at any time without premium or penalty (other than customary breakage costs), subject to minimum principal amount requirements.

Subject to certain exceptions, the Current Term Loan Facility is subject to mandatory prepayments in an amount equal to:

•the net cash proceeds of (1) certain asset sales, (2) certain debt offerings and (3) certain insurance recovery and condemnation events; and

•50% of annual excess cash flow (as defined in the Cash Flow Credit Agreement), subject to reduction to 25% and 0% if specified secured leverage ratio targets are met to the extent that the amount of such excess cash flow exceeds $10.0 million. The annual excess cash flow assessment will begin with the Company’s 2019 fiscal year, payable within five business days after the delivery of the annual financial statements.

The obligations under the Current Cash Flow Credit Agreement are guaranteed by each direct and indirect wholly-owned U.S. restricted subsidiary of the Company, subject to certain exceptions, and are secured by:

•a perfected security interest in substantially all tangible and intangible assets of the Company and each subsidiary guarantor (other than ABL Priority Collateral (as defined below)), including the capital stock of each direct material wholly-owned U.S. restricted subsidiary owned by the Company and each subsidiary guarantor, and 65% of the capital stock of any non-U.S. subsidiary held directly by the Company or any subsidiary guarantor, subject to certain exceptions (the “Cash Flow Priority Collateral”), which security interest will be senior to the security interest in the foregoing assets securing the Current ABL Facility; and

•a perfected security interest in the ABL Priority Collateral, which security interest will be junior to the security interest in the ABL Priority Collateral securing the Current ABL Facility.

The Current Cash Flow Revolver includes a financial covenant set at a maximum secured leverage ratio of 7.75:1.00, which will apply if the outstanding amount of loans and drawings under letters of credit which have not then been reimbursed exceeds a specified threshold at the end of any fiscal quarter.

ABL Credit Agreement due February 2023

On February 8, 2018, the subsidiaries of the Company, NCI Group, Inc. and Robertson-Ceco II Corporation, and the Company as a guarantor, entered into the Pre-merger ABL Credit Agreement. The Pre-merger ABL Credit Agreement provided for an asset-based revolving credit facility (the “Pre-merger ABL Credit Facility”) which allowed aggregate maximum borrowings by the ABL borrowers of up to $150.0 million, letters of credit of up to $30.0 million and up to $20.0 million for swingline borrowings. Borrowing availability was determined by a monthly borrowing base collateral calculation that is based on specified percentages of the value of accounts receivable, eligible credit card receivables and eligible inventory, less certain reserves and subject to certain other adjustments. Availability was reduced by issuance of letters of credit as well as any borrowings. All borrowings under the Pre-merger ABL Credit Facility would have matured on February 8, 2023. This facility was terminated in connection with the Merger and replaced with the Current ABL Facility (defined below).

ABL Facility due April 2023

On April 12, 2018, Ply Gem Midco entered into the Current ABL Credit Agreement, which provides for an asset-based revolving credit facility (the “Current ABL Facility”) of up to $360.0 million, consisting of (i) $285.0 million available to U.S. borrowers (subject to U.S. borrowing base availability) (the “ABL U.S. Facility”) and (ii) $75.0 million available to both U.S. borrowers and Canadian borrowers (subject to U.S. borrowing base and Canadian borrowing base availability) (the “ABL Canadian Facility”). The Company and, at their option, certain of their subsidiaries are the borrowers under the Current ABL Facility. All borrowings under the Current ABL Facility mature on April 12, 2023.

On October 15, 2018, Ply Gem Midco entered into an incremental asset-based revolving credit facility of $36.0 million, which upsized the Current ABL Facility to $396.0 million in the aggregate, and with (x) the ABL U.S. Facility being increased from $285.0 million to $313.5 million and (y) the ABL Canadian Facility being increased from $75.0 million to $82.5 million.

On November 16, 2018, Ply Gem Midco entered into an incremental asset-based revolving credit facility of $215.0 million in connection with the Merger, which upsized the Current ABL Facility to $611.0 million in the aggregate, and with (x) the ABL U.S. Facility being increased from $313.5 million to approximately $483.7 million and (y) the ABL Canadian Facility being increased from $82.5 million to approximately $127.3 million. On November 16, 2018, in connection with the consummation of the Merger, the Company and Ply Gem Midco entered into a joinder agreement with respect to the Current ABL Facility, and the Company became the Parent Borrower (as defined in the ABL Credit Agreement) under the Current ABL Facility.

Borrowing availability under the Current ABL Facility is determined by a monthly borrowing base collateral calculation that is based on specified percentages of the value of eligible inventory, eligible accounts receivable and eligible credit card receivables, less certain reserves and subject to certain other adjustments as set forth in the Current ABL Credit Agreement. Availability is reduced by issuance of letters of credit as well as any borrowings. As of September 28, 2019, the Company had the following in relation to the Current ABL Facility (in thousands):

	September 28, 2019
Excess availability	$	405,976
Revolving loans outstanding	170,000
Letters of credit outstanding	30,311

Loans outstanding under the Current ABL Facility bear interest at a floating rate measured by reference to, at the Company’s option, either (i) an adjusted LIBOR rate (subject to a LIBOR floor of 0.00%) plus an applicable margin ranging from 1.25% to 1.75% per annum depending on the average daily excess availability under the Current ABL Facility or (ii) an alternate base rate plus an applicable margin ranging from 0.25% to 0.75% per annum depending on the average daily excess availability under the ABL Facility. Additionally, unused commitments under the ABL Facility are subject to a 0.25% per annum fee. At September 28, 2019, the weighted average interest rate on the Current ABL Facility was 3.66%.

The obligations under the Current ABL Credit Agreement are guaranteed by each direct and indirect wholly-owned U.S. restricted subsidiary of the Company, subject to certain exceptions, and are secured by:

•a perfected security interest in all present and after-acquired inventory, accounts receivable, deposit accounts, securities accounts, and any cash or other assets in such accounts and other related assets owned by the Company and the U.S. subsidiary guarantors and the proceeds of any of the foregoing, except to the extent such proceeds constitute Cash Flow Priority Collateral, and subject to certain exceptions (the “ABL Priority Collateral”), which security interest is senior to the security interest in the foregoing assets securing the Current Cash Flow Facilities; and

•a perfected security interest in the Cash Flow Priority Collateral, which security interest will be junior to the security interest in the Cash Flow Collateral securing the Current Cash Flow Facilities.

Additionally, the obligations of the Canadian borrowers under the Current ABL Credit Agreement are guaranteed by each direct and indirect wholly-owned Canadian restricted subsidiary of the Canadian borrowers, subject to certain exceptions, and are secured by substantially all assets of the Canadian borrowers and the Canadian subsidiary guarantors, subject to certain exceptions.

The Current ABL Credit Agreement includes a minimum fixed charge coverage ratio of 1.00:1.00, which is tested only when specified availability is less than 10.0% of the lesser of (x) the then applicable borrowing base and (y) the then aggregate effective commitments under the Current ABL Facility, and continuing until such time as specified availability has been in excess of such threshold for a period of 20 consecutive calendar days.

8.00% Senior Notes due April 2026

On April 12, 2018, Ply Gem Midco issued $645.0 million at a discount of 2.25% in aggregate principal amount of 8.00% Senior Notes due April 2026 (the “8.00% Senior Notes”). The 8.00% Senior Notes bear interest at 8.00% per annum and will mature on April 15, 2026. Interest is payable semi-annually in arrears on April 15 and October 15. The effective interest rate for the 8.00% Senior Notes was 8.64% as of September 28, 2019, after considering each of the different interest expense components of this instrument, including the coupon payment and the deferred debt issuance costs.

On November 16, 2018, in connection with the consummation of the Merger, the Company entered into a supplemental indenture and assumed the obligations of Ply Gem Midco as issuer under the Current Indenture.

The 8.00% Senior Notes are guaranteed on a senior unsecured basis by each of the Company’s wholly-owned domestic subsidiaries that guarantee the Company’s obligations under the Current Cash Flow Facilities or the Current ABL Facility (including by reason of being a borrower under the Current ABL Facility on a joint and several basis with the Company or a subsidiary guarantor). The 8.00% Senior Notes are unsecured senior indebtedness and rank equally in right of payment with the Current Cash Flow Facilities and Current ABL Facility. The 8.00% Senior Notes are effectively subordinated to all of the Company’s secured debt, including the Current Cash Flow Facilities and Current ABL Facility, and are senior in right of payment to all subordinated obligations of the Company.

The Company may redeem the 8.00% Senior Notes in whole or in part at any time as set forth below:

•prior to April 15, 2021, the Company may redeem the 8.00% Senior Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to but not including the redemption date, plus the applicable make-whole premium;

•prior to April 15, 2021, the Company may redeem up to 40.0% of the original aggregate principal amount of the 8.00% Senior Notes with proceeds of certain equity offerings, at a redemption price of 108%, plus accrued and unpaid interest, if any, to but not including the redemption date; and

•on or after April 15, 2021, the Company may redeem the 8.00% Senior Notes at specified redemption prices starting at 104% and declining ratably to 100.0% by April 15, 2023, plus accrued and unpaid interest, if any, to but not including the redemption date.

Redemption of 8.25% Senior Notes

On January 16, 2015, the Company issued $250.0 million in aggregate principal amount of the 8.25% Senior Notes. On February 8, 2018, the Company redeemed the outstanding $250.0 million aggregate principal amount of the 8.25% Senior Notes for approximately $265.5 million using the proceeds from borrowings under the Pre-merger Term Loan Credit Facility.

During the nine months ended July 29, 2018, the Company incurred a pretax loss, primarily on the extinguishment of the Notes, of $21.9 million, of which approximately $15.5 million represents the call premium paid on the redemption of the Notes.

Debt Covenants

The Company’s debt agreements contain a number of covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries to incur additional indebtedness; make dividends and other restricted payments; incur additional liens; consolidate, merge, sell or otherwise dispose of all or substantially all assets; make investments; transfer or sell assets; enter into restrictive agreements; change the nature of the business; and enter into certain transactions with affiliates. As of September 28, 2019, the Company was in compliance with all covenants that were in effect on such date.

Insurance Note Payable

As of September 28, 2019, the Company had no notes payable outstanding. As of October 28, 2018, the Company had an outstanding note payable in the amount of $0.5 million related to financed insurance premiums. Insurance premium financings are generally secured by the unearned premiums under such policies.

XML

INCOME TAXES

9 Months Ended

Sep. 28, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Under FASB Accounting Standards Codification 740-270, Income Taxes - Interim Reporting, each interim period is considered an integral part of the annual period and tax expense is measured using an estimated annual effective tax rate. Estimates of the annual effective tax rate at the end of interim periods are, of necessity, based on evaluation of possible future events and transactions and may be subject to subsequent refinement or revision. The Company calculates its quarterly tax provision consistent with the guidance provided by ASC 740-270, whereby the Company forecasts its estimated annual effective tax rate then applies that rate to its year-to-date pre-tax book income (loss). In addition, the Company excludes jurisdictions with a projected loss for the year or the year-to-date loss where the Company cannot recognize a tax benefit from its estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections. In addition to the tax resulting from applying the estimated annual effective tax rate to pre-tax income (loss), the Company includes certain items treated as discrete events to arrive at an estimated effective tax rate. Future changes in the forecasted annual income (loss) projections, tax rate changes, or discrete tax items could result in significant adjustments to quarterly income tax expense in future periods in accordance with ASC 740-270.

For the nine months ended September 28, 2019, the Company's estimated annual effective income tax rate was approximately 40.9%, which varied from the statutory rate primarily due to state income tax expense, valuation allowances, foreign income taxes, and the net impact of the Tax Cuts and Jobs Act (“U.S. Tax Reform”). U.S. Tax Reform was enacted by the United States on December 22, 2017. U.S. Tax Reform incorporates significant changes to U.S. corporate income tax laws including, among other things, a reduction in the federal statutory corporate income tax rate from 35% to 21%, an exemption for dividends received from certain foreign subsidiaries, a one-time repatriation tax on deemed repatriated earnings from foreign subsidiaries, immediate expensing of certain depreciable tangible assets, limitations on the deduction for net interest expense and certain executive compensation and the repeal of the Domestic Production Activities Deduction. The effective tax rate including discrete items related to unrecognized tax benefits and adjustments to state income tax rates was 20.4% for the nine months ended September 28, 2019.

Valuation allowance

As of September 28, 2019, the Company remains in a valuation allowance position, in the amount of $21.4 million, against its deferred tax assets for certain state and Canadian jurisdictions for certain entities as it is currently deemed “more likely than not” that the benefit of such net tax assets will not be utilized as the Company continues to be in a three-year cumulative loss position for these states and Canadian jurisdictions. The Company will continue to monitor the positive and negative factors for these jurisdictions and make further changes to the valuation allowances as necessary. As a result of the Merger, net operating losses may be subject to limitation under Section 382.

Unrecognized tax benefits

Despite the Company’s belief that its tax return positions are consistent with applicable tax laws, the Company believes that certain positions could be challenged by taxing authorities. The Company’s tax reserves reflect the difference between the tax benefit claimed on tax returns and the amount recognized in the consolidated financial statements. These reserves have been established based on management’s assessment as to potential exposure attributable to permanent differences and interest and penalties applicable to both permanent and temporary differences. The tax reserves are reviewed periodically and adjusted in light of changing facts and circumstances, such as progress of tax audits, lapse of applicable statutes of limitations and changes in tax law. The Company is currently under examination by various taxing authorities. During the nine months ended September 28, 2019, the tax reserves increased by approximately $6.9 million. The increase is primarily due to uncertain tax positions that were previously netted against deferred tax assets related to net operating losses in accordance with ASC 740 in addition to interest expense related to previously recorded unrecognized tax benefits.

The liability for unrecognized tax benefits as of September 28, 2019 was approximately $11.9 million and is recorded in other long-term liabilities in the accompanying consolidated balance sheet.

Tax receivable agreement (“TRA”) liability

The TRA liability generally provides for the payment by Ply Gem to a third party entity of 85% of the amount of cash savings, if any, in the U.S. federal, state and local income tax that Ply Gem actually realizes as a result of (i) net operating loss carryovers (“NOLs”) from periods ending before January 1, 2013, (ii) deductible expenses attributable to Ply Gem’s 2013 initial public offering and (iii) deductions related to imputed interest. This liability carried over to the Company in connection with the consummation of the Merger on November 16, 2018. Ply Gem’s future taxable income estimate was used to determine the cumulative NOLs that are expected to be utilized and the TRA liability was accordingly adjusted using the 85% TRA rate as Ply Gem retains the benefit of 15% of the tax savings. As of September 28, 2019, the Company had a $24.8 million current liability for the amount due pursuant to the Tax Receivable Agreement and expects to pay this amount by December 31, 2019.

XML

INVENTORIES (Details) - USD ($) $ in Thousands	Sep. 28, 2019	Oct. 28, 2018
Inventory Disclosure [Abstract]
Raw materials	$ 265,888	$ 205,902
Work in process and finished goods	202,028	48,629
Inventories, net	$ 467,916	$ 254,531

XML

ACQUISITIONS - Narrative (Details)					3 Months Ended	9 Months Ended
	Feb. 20, 2019 USD ($)	Nov. 16, 2018 USD ($) $ / shares	Nov. 15, 2018 USD ($) $ / shares shares	Oct. 15, 2018 USD ($)	Sep. 28, 2019 USD ($) $ / shares	Sep. 28, 2019 USD ($) operating_segment $ / shares	Jul. 29, 2018 USD ($)	Dec. 31, 2018 USD ($)	Oct. 28, 2018 USD ($) $ / shares	Oct. 14, 2018 USD ($)	Apr. 12, 2018 USD ($)	Feb. 08, 2018 USD ($)
Business Acquisition [Line Items]
Goodwill					$ 1,677,929,000	$ 1,677,929,000		$ 1,640,211,000	$ 148,291,000
Common stock, par value (in USD per share) | $ / shares					$ 0.01	$ 0.01			$ 0.01
Payment on outstanding borrowings						$ 120,000,000	$ 85,000,000
Proceeds from ABL facility						290,000,000	$ 85,000,000
Environmental Stoneworks
Business Acquisition [Line Items]
Percentage of outstanding interests acquired	100.00%
Total cash consideration transferred	$ 182,600,000
Goodwill	$ 60,487,000
Acquisition related expenses					$ 0	1,500,000
Net sales of acquiree included in our financial statements					45,400,000	108,200,000
Net income (loss) of acquiree included in our financial statements					$ 2,800,000	5,800,000
Pro forma acquisition and compensation costs						70,300,000
Pro forma purchase price allocation of inventories						$ 37,900,000
Ply Gem
Business Acquisition [Line Items]
Total cash consideration transferred		$ 728,900,000
Goodwill		$ 1,469,563,000
Shares issued in transaction (in shares) | shares			58,709,067
Common stock, par value (in USD per share) | $ / shares			$ 0.01
Sale of stock, ownership percentage issued			47.00%
Business acquisition, share price (in dollars per share) | $ / shares		$ 12.16
Equity not issued in merger (in shares) | shares			57,103
Consideration transferred, stock issuance		$ 713,900,000
Cash payment for acquisition		15,000,000.0
Term Loan Facility
Business Acquisition [Line Items]
Debt instrument, face amount		1,755,000,000.0
Increase in borrowing capacity		805,000,000.0
Line of credit outstanding		2,555,600,000
Term Loan Facility | Ply Gem
Business Acquisition [Line Items]
Debt instrument, face amount											$ 1,755,000,000.0
Increase in borrowing capacity		805,000,000.0
Cash Flow Revolver
Business Acquisition [Line Items]
Line of credit facility, maximum borrowing capacity		115,000,000.0									$ 115,000,000.0
Proceeds from ABL facility		$ 0
8.00% Senior Notes
Business Acquisition [Line Items]
Debt instrument, interest rate, stated percentage		8.00%			8.00%	8.00%					8.00%
ABL Facility
Business Acquisition [Line Items]
Proceeds from ABL facility		$ 0
ABL Facility | Revolving Credit Facility
Business Acquisition [Line Items]
Line of credit facility, maximum borrowing capacity		611,000,000.0		$ 396,000,000.0							$ 360,000,000.0	$ 150,000,000.0
Increase in borrowing capacity		215,000,000.0		36,000,000.0
Payment on outstanding borrowings		$ 325,000,000.0
Debt instrument, quarterly debt amortization, percent of aggregate principal amount		1.00%
ABL Facility | Revolving Credit Facility | ABL U.S. Facility
Business Acquisition [Line Items]
Line of credit facility, maximum borrowing capacity		$ 483,700,000	$ 313,500,000	313,500,000						$ 285,000,000.0	285,000,000.0
ABL Facility | Revolving Credit Facility | ABL Canadian Facility
Business Acquisition [Line Items]
Line of credit facility, maximum borrowing capacity		127,300,000	$ 82,500,000	$ 82,500,000						$ 75,000,000.0	75,000,000.0
Letter of Credit | ABL Facility
Business Acquisition [Line Items]
Line of credit facility, maximum borrowing capacity												$ 30,000,000.0
Line of credit outstanding		24,700,000
Ply Gem
Business Acquisition [Line Items]
Number of segments | operating_segment						2
Ply Gem | 8.00% Senior Notes
Business Acquisition [Line Items]
Debt instrument, face amount											$ 645,000,000.0
Siding
Business Acquisition [Line Items]
Goodwill					$ 900,849,000	$ 900,849,000		853,386,000	$ 0
Siding | Ply Gem
Business Acquisition [Line Items]
Goodwill		840,600,000
Windows
Business Acquisition [Line Items]
Goodwill					$ 628,789,000	$ 628,789,000		$ 638,534,000	$ 0
Windows | Ply Gem
Business Acquisition [Line Items]
Goodwill		$ 629,000,000.0

XML

SEGMENT INFORMATION (Tables)

9 Months Ended

Sep. 28, 2019

Segment Reporting [Abstract]

Schedule of Sales, Operating Income, and Total Assets for Operating Segments

The following table represents summary financial data attributable to the segments for the periods indicated (in thousands):

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Net sales:
Commercial	$	464,906	$	548,525	$	1,370,152	$	1,426,943
Siding	315,799		—		840,601		—
Windows	504,338		—		1,434,579		—
Total net sales	$	1,285,043	$	548,525	$	3,645,332	$	1,426,943
Operating income:
Commercial	$	59,317	$	79,964	$	142,436	$	157,785
Siding	37,063		—		51,346		—
Windows	34,446		—		62,039		—
Corporate	(35,266)		(25,463)		(106,695)		(71,430)
Total operating income	95,560		54,501		149,126		86,355
Unallocated other expense, net	(56,293)		(4,437)		(170,894)		(37,690)
Income (loss) before taxes	$	39,267	$	50,064	$	(21,768)	$	48,665

	September 28, 2019		October 28, 2018
Total assets:
Commercial	$	1,013,517	$	1,024,433
Siding	2,395,916		—
Windows	2,100,574		—
Corporate	198,449		85,942
Total assets	$	5,708,456	$	1,110,375

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS - Schedule of Fair Values of Financial Instruments (Details) - USD ($)	Sep. 28, 2019	Nov. 16, 2018	Oct. 28, 2018	Apr. 12, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long term debt, carrying amount	$ 3,293,246,000		$ 407,226,000
8.00% Senior Notes
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long term debt, carrying amount	645,000,000		0
Long-term debt, fair value	$ 632,100,000		0
Debt instrument, interest rate, stated percentage	8.00%	8.00%		8.00%
ABL Facility
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long term debt, carrying amount	$ 170,000,000.0
Cash Flow Revolver
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long term debt, carrying amount	0
Term Loan Facilities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Long term debt, carrying amount	2,536,397,000		412,925,000
Long-term debt, fair value	$ 2,478,263,000		$ 412,409,000

XML

CONTINGENCIES (Details) - USD ($) $ in Millions	1 Months Ended
	Nov. 30, 2018	Sep. 28, 2019
RCRA Facility Investigation
Loss Contingencies [Line Items]
Environmental liability accrual		$ 4.5
PCE/TCE Northeast Contamination Site
Loss Contingencies [Line Items]
Environmental liability accrual		5.0
Aurora Plastics LLC vs. Atrium | Minimum
Loss Contingencies [Line Items]
Loss contingency, damages sought	$ 48.0
Current Liabilities | RCRA Facility Investigation
Loss Contingencies [Line Items]
Environmental liability accrual		0.3
Other Noncurrent Liabilities | RCRA Facility Investigation
Loss Contingencies [Line Items]
Environmental liability accrual		$ 4.2

XML

CD&R INVESTOR GROUP

9 Months Ended

Sep. 28, 2019

Equity [Abstract]

CD&R Investor Group

CD&R INVESTOR GROUP

On August 14, 2009, the Company entered into an Investment Agreement (as amended, the “Investment Agreement”), by and between the Company and Clayton, Dubilier & Rice Fund VIII, L.P., a Cayman Islands exempted limited partnership (“CD&R Fund VIII”). In connection with the Investment Agreement and the Stockholders Agreement dated October 20, 2009 (the “Old Stockholders Agreement”), CD&R Fund VIII and CD&R Friends & Family Fund VIII, L.P., a Cayman Islands exempted limited partnership (“CD&R FF Fund” and, together with CD&R Fund VIII, the “CD&R Fund VIII Investor Group”) purchased convertible preferred stock of the Company, which was converted into shares of our common stock on May 14, 2013.

On December 11, 2017, the CD&R Fund VIII Investor Group completed a registered underwritten offering of 7,150,000 shares of the Company’s Common Stock at a price to the public of $19.36 per share (the “2017 Secondary Offering”). Pursuant to the underwriting agreement, at the CD&R Fund VIII Investor Group request, the Company purchased 1.15 million of the 7.15 million shares of the Company’s Common Stock from the underwriters in the 2017 Secondary Offering at a price per share equal to the price at which the underwriters purchased the shares from the CD&R Fund VIII Investor Group. The total amount the Company spent on these repurchases was $22.3 million.

Ply Gem Holdings was acquired by CD&R Fund X and Atrium Intermediate Holdings, LLC, GGC BP Holdings, LLC and AIC Finance Partnership, L.P. (collectively, the “Golden Gate Investor Group”) and merged with Atrium on April 12, 2018 (the “Ply Gem-Atrium Merger”).

Pursuant to the terms of the Merger Agreement, on November 16, 2018, the Company entered into (i) a stockholders agreement (the “New Stockholders Agreement”) between the Company, and each of the CD&R Fund VIII Investor Group, CD&R Pisces Holdings, L.P., a Cayman Islands exempted limited partnership (“CD&R Pisces”, and together with the CD&R Fund VIII Investor Group, the “CD&R Investor Group”) and the Golden Gate Investor Group (together with the CD&R Investor Group, the “Investors”), pursuant to which the Company granted to the Investors certain governance, preemptive and subscription rights and (ii) a registration rights agreement (the “New Registration Rights Agreement”) between the Company and each of the Investors, pursuant to which the Company granted the Investors customary demand and piggyback registration rights, including rights to demand registrations and underwritten shelf registration statement offerings with respect to the shares of the Company’s Common Stock that are held by the Investors following the consummation of the Merger.

Pursuant to the terms of the New Stockholders Agreement, the Company and the CD&R Fund VIII Investor Group terminated the Old Stockholders Agreement. Pursuant to the terms of the New Registration Rights Agreement, the Company and the CD&R Fund VIII Investor Group terminated the Registration Rights Agreement, dated as of October 20, 2009 (the “Old Registration Rights Agreement”), by and among the Company and the CD&R Fund VIII Investor Group.

As of September 28, 2019, the CD&R Investor Group owned approximately 49.3% of the outstanding shares of the Company’s Common Stock. At October 28, 2018, the CD&R Fund VIII Investor Group owned approximately 34.4% of the outstanding shares of the Company’s Common Stock.

XML

SEGMENT INFORMATION

9 Months Ended

Sep. 28, 2019

Segment Reporting [Abstract]

SEGMENT INFORMATION

SEGMENT INFORMATION

Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and is evaluated on a regular basis by the chief operating decision maker to make decisions regarding the allocation of resources to the segment and assess the performance of the segment. For the transition period ended December 31, 2018, the Company began reporting results under three reportable segments: Commercial, Siding and Windows. The Company’s prior reportable segments, Engineered Building Systems, Metal Components, Insulated Metal Panels, and Metal Coil Coating, are now collectively in the Commercial segment. Prior periods for all periods presented have been recast to conform to the current segment presentation. The Siding segment will include the operating results of the legacy Ply Gem operating segment of Siding, Fencing, and Stone, and the Windows segment will include the operating results of the legacy Ply Gem operating segment of Windows and Doors.

These operating segments follow the same accounting policies used for our consolidated financial statements. We evaluate a segment’s performance based primarily upon operating income before corporate expenses.

Corporate assets consist primarily of cash, investments, prepaid expenses, current and deferred taxes and property, plant and equipment associated with our headquarters in Cary, North Carolina and office in Houston, Texas. These items (and income and expenses related to these items) are not allocated to the operating segments. During the nine months ended September 28, 2019, the Company changed the manner in which costs were allocated to the Commercial segment for commercial cost centers that had previously been categorized as unallocated corporate costs. Corporate unallocated expenses include share-based compensation expenses, acquisition costs, and other expenses related to executive, legal, finance, tax, treasury, human resources, information technology and strategic sourcing, and corporate travel expenses. Additional unallocated amounts primarily include non-operating items such as interest income, interest expense, loss on extinguishment of debt and other income (expense).

The following table represents summary financial data attributable to the segments for the periods indicated (in thousands):

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Net sales:
Commercial	$	464,906	$	548,525	$	1,370,152	$	1,426,943
Siding	315,799		—		840,601		—
Windows	504,338		—		1,434,579		—
Total net sales	$	1,285,043	$	548,525	$	3,645,332	$	1,426,943
Operating income:
Commercial	$	59,317	$	79,964	$	142,436	$	157,785
Siding	37,063		—		51,346		—
Windows	34,446		—		62,039		—
Corporate	(35,266)		(25,463)		(106,695)		(71,430)
Total operating income	95,560		54,501		149,126		86,355
Unallocated other expense, net	(56,293)		(4,437)		(170,894)		(37,690)
Income (loss) before taxes	$	39,267	$	50,064	$	(21,768)	$	48,665

	September 28, 2019		October 28, 2018
Total assets:
Commercial	$	1,013,517	$	1,024,433
Siding	2,395,916		—
Windows	2,100,574		—
Corporate	198,449		85,942
Total assets	$	5,708,456	$	1,110,375

XML

ACQUISITIONS (Tables)

9 Months Ended

Sep. 28, 2019

Business Acquisition [Line Items]

Schedule of Estimated Fair Value of Assets and Liabilities Assumed from Acquisition

The Company determined the fair values of the tangible and intangible assets acquired and the liabilities assumed in the Merger, and recorded goodwill based on the excess of fair value of the acquisition consideration over such fair values, as follows (in thousands):

Assets acquired:
Cash	$	102,121
Accounts receivable	345,801
Inventories	301,513
Prepaid expenses and other current assets	51,223
Property, plant and equipment	364,981
Intangible assets (trade names/customer relationships)	1,720,000
Goodwill	1,469,563
Other assets	3,262
Total assets acquired	4,358,464
Liabilities assumed:
Accounts payable	139,955
Tax receivable agreement liability	47,355
Other accrued expenses (inclusive of $25.3 million for current warranty liabilities)	246,341
Debt (inclusive of current portion)	2,674,767
Other long-term liabilities ($163.6 million for accrued long-term warranty)	163,561
Deferred income taxes	325,593
Other long-term liabilities	31,947
Total liabilities assumed	3,629,519
Net assets acquired	$	728,945

Business Acquisition, Pro Forma Information

The following table provides unaudited supplemental pro forma results for Cornerstone, prepared in accordance with ASC 805, for the three and nine months ended September 28, 2019 and July 29, 2018 as if the Environmental Stoneworks and Ply Gem (disclosed below) acquisitions had occurred on October 30, 2017 (beginning of the nine months ended July 29, 2018) (in thousands except for per share data):

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Net sales	$	1,285,043	$	1,381,820	$	3,661,428	$	3,668,062
Net income (loss) applicable to common shares	28,456		(56,165)		10,532		(221,019)
Net income (loss) per common share:
Basic	$	0.23	$	(0.45)	$	0.08	$	(1.76)
Diluted	$	0.23	$	(0.45)	$	0.08	$	(1.76)

Environmental Stoneworks

Business Acquisition [Line Items]

Schedule of Estimated Fair Value of Assets and Liabilities Assumed from Acquisition

The Company determined the fair value of the tangible and intangible assets and the liabilities acquired, and recorded goodwill based on the excess of fair value of the acquisition consideration over such fair values, as follows (in thousands):

Assets acquired:
Restricted cash	$	3,379
Accounts receivable	17,134
Inventories	13,062
Prepaid expenses and other current assets	3,677
Property, plant and equipment	14,295
Lease right of use assets	11,372
Intangible assets (trade names/customer relationships)	91,170
Goodwill	60,487
Other assets	157
Total assets acquired	214,733
Liabilities assumed:
Accounts payable	5,910
Other accrued expenses	11,445
Lease liabilities	11,365
Other long-term liabilities	3,450
Total liabilities assumed	32,170
Net assets acquired	$	182,563

XML

INTANGIBLES

9 Months Ended

Sep. 28, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLES

INTANGIBLES

The table that follows presents the major components of intangible assets as of September 28, 2019 and October 28, 2018 (in thousands):

	Range of Life (Years)			Cost		Accumulated Amortization		Net Carrying Value
As of September 28, 2019
Amortized intangible assets:
Trademarks/Trade names(1)	6	–	15	$	252,942	$	(34,257)	$	218,685
Customer lists and relationships	5	–	20	1,737,060		(170,808)		1,566,252
Total intangible assets				$	1,990,002	$	(205,065)	$	1,784,937
(1) During the nine months ended September 28, 2019, the Company began amortization of trade names previously classified as indefinite-lived over an eight-year period.
	Range of Life (Years)			Cost		Accumulated Amortization		Net Carrying Value
As of October 28, 2018
Amortized intangible assets:
Trademarks/Trade names		15		$	29,167	$	(12,657)	$	16,510
Customer lists and relationships	12	–	20	136,210		(38,646)		97,564
Indefinite-lived intangible assets:
Trade names				13,455		—		13,455
Total intangible assets				$	178,832	$	(51,303)	$	127,529

XML

EARNINGS PER COMMON SHARE

9 Months Ended

Sep. 28, 2019

Earnings Per Share [Abstract]

EARNINGS PER COMMON SHARE

EARNINGS PER COMMON SHARE

Basic earnings per common share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding. Diluted earnings per common share, if applicable, considers the dilutive effect of common stock equivalents. The reconciliation of the numerator and denominator used for the computation of basic and diluted earnings per common share is as follows (in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Numerator for Basic and Diluted Earnings Per Common Share
Net income (loss) applicable to common shares	$	24,790	$	35,765	$	(17,320)	$	35,303
Denominator for Basic and Diluted Income Per Common Share
Weighted average basic number of common shares outstanding	125,557		66,335		125,526		66,361
Common stock equivalents:
Employee stock options	1		95		—		98
PSUs and Performance Share Awards	—		8		—		18
Weighted average diluted number of common shares outstanding	125,558		66,438		125,526		66,477
Basic income (loss) per common share	$	0.20	$	0.54	$	(0.14)	$	0.53
Diluted income (loss) per common share	$	0.20	$	0.54	$	(0.14)	$	0.53
Incentive Plan securities excluded from dilution(1)	5,189		—		4,974		—

(1)Represents securities not included in the computation of diluted earnings per common share because their effect would have been anti-dilutive.

We calculate earnings per share using the “two-class” method, whereby unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are “participating securities” and, therefore, these participating securities are treated as a separate class in computing earnings per share. The calculation of earnings per share presented here excludes the income attributable to unvested restricted stock units related to our Incentive Plan from the numerator and excludes the dilutive impact of those shares from the denominator. Awards subject to the achievement of performance conditions or market conditions for which such conditions had been met at the end of any of the fiscal periods presented are included in the computation of diluted earnings per common share if their effect was dilutive.

XML

LONG-TERM DEBT AND NOTE PAYABLE (Tables)

9 Months Ended

Sep. 28, 2019

Debt Instrument [Line Items]

Schedule Of Debt

Debt is comprised of the following (in thousands):

	September 28, 2019		October 28, 2018
Asset-based revolving credit facility due April 2023	$	170,000	$	—
Asset-based revolving credit facility due February 2023	—		—
Term loan facility due April 2025	2,536,397		—
Term loan facility due February 2025	—		412,925
Cash flow revolver due April 2023	—		—
8.00% senior notes due April 2026	645,000		—
Less: unamortized discounts and unamortized deferred financing costs(1)	(58,151)		(5,699)
Total long-term debt, net of unamortized discounts and unamortized deferred financing costs	3,293,246		407,226
Less: current portion of long-term debt	25,600		4,150
Total long-term debt, less current portion	$	3,267,646	$	403,076

(1)Includes the unamortized deferred financing costs associated with the term loan facilities and senior notes. The unamortized deferred financing costs associated with the asset-based revolving credit facilities of $2.6 million and $1.1 million as of September 28, 2019 and October 28, 2018, respectively, are classified in other assets on the consolidated balance sheets.

Schedule of Long-term Debt Instruments

As of September 28, 2019, the Company had the following in relation to the Current ABL Facility (in thousands):

	September 28, 2019
Excess availability	$	405,976
Revolving loans outstanding	170,000
Letters of credit outstanding	30,311

Term Loan Facility

Debt Instrument [Line Items]

Schedule of Long-term Debt Instruments

At September 28, 2019, the interest rates on the Current Term Loan Facility were as follows:

	September 28, 2019
Interest rate	5.79	%
Effective interest rate	6.51	%

XML

LEASES (Tables)

9 Months Ended

Sep. 28, 2019

Leases [Abstract]

Schedules of Lease Costs

Weighted average information about the Company’s lease portfolio as of September 28, 2019 was as follows:

Weighted-average remaining lease term	5.6 years
Weighted-average IBR	6.08	%

Operating lease costs for the three and nine months ended September 28, 2019 were as follows (in thousands):

	Three Months Ended		Nine Months Ended
	September 28, 2019		September 28, 2019
Operating lease costs
Fixed lease costs	$	23,903	$	77,125
Variable lease costs(1)	8,654		27,868
(1) Includes short-term lease costs, which are immaterial.

Cash and Non-cash Activities of Leases

Cash and non-cash activities for the three and nine months ended September 28, 2019 were as follows (in thousands):

	Three Months Ended		Nine Months Ended
	September 28, 2019		September 28, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	23,463	$	66,936
Right-of-use assets obtained in exchange for new operating lease liabilities	$	47,236	$	372,269

Schedule of Future Minimum Lease Payments

Future minimum lease payments under non-cancelable leases as of September 28, 2019 were as follows (in thousands):

	Operating Leases
2019 (excluding the nine months ended September 28, 2019)	$	23,640
2020	86,617
2021	76,607
2022	61,548
2023	34,935
Thereafter	119,393
Total future minimum lease payments	402,740
Less: interest	90,123
Present value of future minimum lease payments	$	312,617
As of September 28, 2019
Current portion of lease liabilities	$	68,993
Long-term portion of lease liabilities	243,624
Total	$	312,617

XML

GOODWILL (Tables)

9 Months Ended

Sep. 28, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

The Company’s goodwill balance and changes in the carrying amount of goodwill by segment follows (in thousands):

	Commercial		Siding		Windows		Total
Balance, October 28, 2018	$	148,291	$	—	$	—	$	148,291
Goodwill recognized from Merger	—		854,606		639,447		1,494,053
Currency translation	—		(1,220)		(913)		(2,133)
Balance, December 31, 2018	$	148,291	$	853,386	$	638,534	$	1,640,211
Goodwill recognized from Environmental Stoneworks Acquisition	—		60,487		—		60,487
Currency translation	—		985		736		1,721
Purchase accounting adjustments	—		(14,009)		(10,481)		(24,490)
Balance, September 28, 2019	$	148,291	$	900,849	$	628,789	$	1,677,929

XML

LEASES - Summary of Lease Costs (Details) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 28, 2019 USD ($)	Sep. 28, 2019 USD ($)
Leases [Abstract]
Weighted-average remaining lease term	5 years 7 months 6 days	5 years 7 months 6 days
Weighted-average IBR (as a percent)	6.08%	6.08%
Fixed lease costs	$ 23,903	$ 77,125
Variable lease costs	$ 8,654	$ 27,868

XML

EARNINGS PER COMMON SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 28, 2019	Jul. 29, 2018	Sep. 28, 2019	Jul. 29, 2018
Numerator for Basic and Diluted Earnings Per Common Share
Net income (loss) applicable to common shares	$ 24,790	$ 35,765	$ (17,320)	$ 35,303
Denominator for Basic and Diluted Income Per Common Share
Weighted average basic number of common shares outstanding (in shares)	125,557	66,335	125,526	66,361
Weighted average diluted number of common shares outstanding (in shares)	125,558	66,438	125,526	66,477
Basic income (loss) per common share (in USD per share)	$ 0.20	$ 0.54	$ (0.14)	$ 0.53
Diluted income (loss) per common share (in USD per share)	$ 0.20	$ 0.54	$ (0.14)	$ 0.53
Incentive Plan securities excluded from dilution (in shares)	5,189	0	4,974	0
Employee stock options
Denominator for Basic and Diluted Income Per Common Share
Incremental common shares attributable to dilutive effect of share-based payment arrangements (in shares)	1	95	0	98
PSUs and Performance Share Awards
Denominator for Basic and Diluted Income Per Common Share
Incremental common shares attributable to dilutive effect of share-based payment arrangements (in shares)	0	8	0	18

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 28, 2019	Jul. 29, 2018	Sep. 28, 2019	Jul. 29, 2018
Comprehensive income (loss):
Net income (loss)	$ 25,164	$ 35,986	$ (17,320)	$ 35,551
Other comprehensive loss, net of tax:
Foreign exchange translation gains (losses)	(1,862)	(68)	4,278	(92)
Unrealized loss on derivative instruments	(6,858)	0	(29,604)	0
Other comprehensive loss	(8,720)	(68)	(25,326)	(92)
Comprehensive income (loss)	$ 16,444	$ 35,918	$ (42,646)	$ 35,459

XML

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Retained Earnings (Deficit)	Accumulated Other Comprehensive Income (Loss)	Treasury Stock
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative effect of accounting change	$ 0		$ 1,351	$ (1,351)
Balance (in shares) at Oct. 29, 2017		68,677,684				(291,128)
Balance at Oct. 29, 2017	305,247	$ 687	562,277	(248,046)	$ (7,531)	$ (2,140)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Treasury stock purchases (in shares)						(2,938,974)
Treasury stock purchases	(51,753)					$ (51,753)
Retirement of treasury shares (in shares)		(2,938,974)				2,938,974
Retirement of treasury shares		$ (29)	(51,743)			$ 51,772
Issuance of restricted stock (in shares)		410,379				181,439
Issuance of restricted stock		$ 4	(4)
Other comprehensive loss	(147)		(55)		(92)
Deferred compensation obligation	$ 0		(954)			$ 954
Deferred compensation obligation (in shares)						48,876
Stock options exercised (in shares)	100,000	115,424
Stock options exercised	$ 1,279	$ 1	1,278
Share-based compensation	8,909		8,909
Net income (loss)	35,551			35,551
Balance (in shares) at Jul. 29, 2018		66,264,513				(60,813)
Balance at Jul. 29, 2018	299,086	$ 663	521,059	(213,846)	(7,623)	$ (1,167)
Balance (in shares) at Apr. 29, 2018		66,252,112				(109,793)
Balance at Apr. 29, 2018	262,324	$ 663	521,190	(249,832)	(7,555)	$ (2,142)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Treasury stock purchases (in shares)						(21,940)
Treasury stock purchases	(436)					$ (436)
Retirement of treasury shares (in shares)		(22,044)				22,044
Retirement of treasury shares			(457)			$ 457
Issuance of restricted stock (in shares)		12,657
Other comprehensive loss	(68)				(68)
Deferred compensation obligation	0		(954)			$ 954
Deferred compensation obligation (in shares)						48,876
Stock options exercised (in shares)		21,788
Stock options exercised	239		239
Share-based compensation	1,041		1,041
Net income (loss)	35,986			35,986
Balance (in shares) at Jul. 29, 2018		66,264,513				(60,813)
Balance at Jul. 29, 2018	299,086	$ 663	521,059	(213,846)	(7,623)	$ (1,167)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative effect of accounting change	(3,358)			(3,358)
Balance (in shares) at Oct. 28, 2018		66,264,654				(60,813)
Balance at Oct. 28, 2018	330,265	$ 663	523,788	(186,291)	(6,708)	$ (1,187)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Treasury stock purchases (in shares)						(347,040)
Treasury stock purchases	(4,128)					$ (4,128)
Retirement of treasury shares (in shares)		(296,954)				296,954
Retirement of treasury shares		$ (3)	(3,634)			$ 3,637
Issuance of restricted stock (in shares)		977,226
Issuance of restricted stock		$ 10	(10)
Issuance of common stock for the Ply Gem merger (in shares)		58,638,233
Issuance of common stock for the Ply Gem merger	713,041	$ 586	712,455
Other comprehensive loss	(4,105)				(4,105)
Share-based compensation	4,457		4,457
Net income (loss)	(76,190)			(76,190)
Balance (in shares) at Dec. 31, 2018		125,583,159				(110,899)
Balance at Dec. 31, 2018	959,982	$ 1,256	1,237,056	(265,839)	(10,813)	$ (1,678)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Treasury stock purchases (in shares)						(34,724)
Treasury stock purchases	(231)					$ (231)
Retirement of treasury shares (in shares)		(84,810)				84,810
Retirement of treasury shares		$ (1)	(722)			$ 723
Issuance of restricted stock (in shares)		109,430
Issuance of restricted stock		$ 2	(2)
Issuance of common stock for the Ply Gem merger (in shares)		13,731
Issuance of common stock for the Ply Gem merger	167		167
Other comprehensive loss	$ (25,326)				(25,326)
Deferred compensation obligation			(86)			$ 86
Deferred compensation obligation (in shares)						5,712
Stock options exercised (in shares)	0
Share-based compensation	$ 10,613		10,613
Net income (loss)	(17,320)			(17,320)
Balance (in shares) at Sep. 28, 2019		125,621,510				(55,101)
Balance at Sep. 28, 2019	927,885	$ 1,257	1,247,026	(283,159)	(36,139)	$ (1,100)
Balance (in shares) at Jun. 29, 2019		125,588,427				(69,315)
Balance at Jun. 29, 2019	908,204	$ 1,256	1,243,897	(308,323)	(27,419)	$ (1,207)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Treasury stock purchases (in shares)						(12,612)
Treasury stock purchases	(64)					$ (64)
Retirement of treasury shares (in shares)		(26,826)				26,826
Retirement of treasury shares			(171)			$ 171
Issuance of restricted stock (in shares)		46,178
Issuance of restricted stock		$ 1	(1)
Issuance of common stock for the Ply Gem merger (in shares)		13,731
Issuance of common stock for the Ply Gem merger	167		167
Other comprehensive loss	(8,720)				(8,720)
Share-based compensation	3,134		3,134
Net income (loss)	25,164			25,164
Balance (in shares) at Sep. 28, 2019		125,621,510				(55,101)
Balance at Sep. 28, 2019	$ 927,885	$ 1,257	$ 1,247,026	$ (283,159)	$ (36,139)	$ (1,100)

XML

LONG-TERM DEBT AND NOTE PAYABLE - Schedule of Debt (Details) - USD ($) $ in Thousands	Sep. 28, 2019	Nov. 16, 2018	Oct. 28, 2018	Apr. 12, 2018
Debt Instrument [Line Items]
Unamortized discounts and unamortized deferred financing costs	$ (58,151)		$ (5,699)
Total long-term debt, net of unamortized discounts and unamortized deferred financing costs	3,293,246		407,226
Less: current portion of long-term debt	25,600		4,150
Total long-term debt, less current portion	3,267,646		403,076
Asset-based revolving credit facility due April 2023
Debt Instrument [Line Items]
Long-term debt, gross	170,000		0
Asset-based revolving credit facility due February 2023
Debt Instrument [Line Items]
Long-term debt, gross	0		0
Term loan facility due April 2025
Debt Instrument [Line Items]
Long-term debt, gross	2,536,397		0
Term loan facility due February 2025
Debt Instrument [Line Items]
Long-term debt, gross	0		412,925
Cash flow revolver due April 2023
Debt Instrument [Line Items]
Long-term debt, gross	0		0
8.00% senior notes due April 2026
Debt Instrument [Line Items]
Long-term debt, gross	645,000		0
Total long-term debt, net of unamortized discounts and unamortized deferred financing costs	$ 645,000		0
Debt instrument, interest rate, stated percentage	8.00%	8.00%		8.00%
Other Assets | ABL Facility | Asset-based lending credit facility, due 2023
Debt Instrument [Line Items]
Unamortized deferred financing costs	$ 2,600		$ 1,100